The threat of a value added tax (VAT) in the United States is growing steadily. Despite protesting that it is not something he is considering, President Obama refused to rule out a VAT completely, much as David Cameron and Nick Klegg, the new leaders of the U.K. refused to rule out an increase in the UK VAT during the campaign.
Of course, one day after taking office they were laying the groundwork for an increase in the UK VAT to 20 percent. That would be a 5 percentage point increase from the current 15 percent rate. Not surprisingly, Obama has already said he would consider it if his debt commission finds it necessary.
The VAT threat will lurk in dark corners until either Congress brings the deficit under control or Obama is ready to bring it out into the open. Until then, murmurings will continue that a VAT is the only way to solve our fiscal mess. Unfortunately, it appears at least to have been part of President Obama's plan all along to drive spending up rapidly - to "glut the beast" - to make a VAT seem inevitable.
If Congress did pass a VAT, it would impose a tremendous increase in the tax burden that would severely curtail economic growth. Everything we buy would jump in price, effectively slashing workers' and families' incomes. Even worse, the VAT would permanently cement in place Obama's big government vision while giving Congress easy access to a never-ending well of our money to dip into each time it wants more money to spend.
Because of the enormous cost the VAT would inflict, Senator McCain recently pushed a sense of the Senate resolution that stated:
"It is the sense of the Senate that the Value Added Tax increase will cripple families on fixed income and only further push back America's economic recovery and the Senate opposes a Value Added Tax."
It passed the Senate with a vote of 85 in favor and only 13 misguided souls against. That vote is a useful guide for voters to know where their representatives in the Senate stand on a massive tax increase on families.
Following up on the McCain Resolution, Representative Wally Herger (R-CA) has introduced a similar resolution in the House of Representatives with 85 original co-sponsors. Rep. Herger's resolution systematically lays out many of the serious problems a VAT would cause. If it comes to a vote, Rep. Herger's resolution will be another useful tool for voters in this election year as they will then know who stands with big government and who stands with America's families. If Speaker Pelosi (D-CA), prevents the Herger Resolution from coming to a vote, then we will still know who stood up to be a co-sponsor and who remained silent, and ever voter may fairly presume that silence indicates support for a VAT.
Proponents of limited government need to fight back strongly against the VAT because if it becomes a reality, it will become next to impossible ever to restrain the size of government. Members of Congress should be honest with the American people, going on the record as to where they stand on the VAT. The Herger Resolution is a good place to start.
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Curtis Dubay
Curtis Dubay is a Senior Policy Analyst at The Heritage Foundation, where he specializes in tax issues.
