The VAT trap

If you drive a car, I’ll tax the street;
If you try to sit, I’ll tax your seat;
If you get too cold, I’ll tax the heat;
If you take a walk, I’ll tax your feet.

Unfortunately, most Americans can relate all too well with these words from the classic Beatles song Taxman. Taxes are levied from the moment we wake up in the morning to turn on electricity, to the moment we sit down in the evening to pay the bills. The simple thought of additional taxes is enough to make stomachs turn – especially with our economy in turmoil and unemployment hovering just under 10 percent.

However, there is yet another way some in Washington want to raise taxes: The value added tax.

For months, the value added tax (VAT) was dismissed as simply a rumor. Then, the “rumor” gained some traction when an administration adviser, Paul Volcker, suggested that a value added tax was a possibility in the near future to curb our nation’s deficit.  

The VAT is a hidden, national sales tax that hits consumers across the board, rich and poor alike. Under a 5 percent VAT, a $3.70 gallon of milk would sell for $3.89; a $2,000 MacBook Pro would cost $2,100.  A 5 percent VAT would drive nearly $300 billion into the government’s coffers by taking thousands from every household.  The Cato Institute outlined how the VAT would be a “large new burden on American families:”

 “A VAT would raise hundreds of billions of dollars a year for the government, even at a 10-percent rate. The math is simple: Total U.S. consumption in 2008 was $10 trillion.  VATs usually tax about half of a nation’s consumption or less, say $5 trillion.  That means that a 10 percent VAT would raise about $500 billion a year in the United States, or about $4,300 from every household.”

In addition to taking thousands from working Americans, the VAT is a job-killer that could slow the economy at the worst possible time. The Heritage Foundation has said that even a relatively small VAT of 3 percent would demolish or destroy up to 2.1 million jobs by its fifth year.

But the VAT rate would likely be even more than that.  Countries where – as the President suggests – the VAT has “worked” have experienced increases from 5 percent at the introduction of the tax to 20 percent today. Moreover, their total tax burden has increased to over 40 percent of their GDP.  To be clear, the VAT is not a flat tax. With the flat tax, the percentage would not change and it would replace our current tax system. The VAT is a hidden tax in addition to current taxes already being levied.

VAT is a major contributing factor to the fiscal crisis in Greece and Spain and other countries in Europe. Greece had a 19 percent VAT in place when it saw large increases in its domestic spending and debt. And because VAT is a hidden tax, taxing the transaction of goods throughout the manufacturing process and ultimately passing costs to consumers, many countries that started with a low value added tax raised it without much public scrutiny. The result is an opportunity for more and more government spending.

When our nation is facing the worst economic crisis in 25 years and record level deficits, it is not the time to raise taxes on families and small business, and it is certainly not the right answer to impose the European-style VAT on the United States.  A value added tax is wrong and we need to take it off the table here in the United States.

I am proud to cosponsor House Resolution 1346.  This resolution unequivocally states that the VAT is not an option and that the House of Representatives flatly opposes such a tax.  The Senate recently passed a similar resolution with a vote of 85-13. I also signed a letter to the President’s Debt Commission urging them to take the VAT option off of the table.

The simple truth is a VAT will not get federal spending under control, curb our debt or create career opportunities for Americans. It ignores the true problem – runaway government spending. For that, we need lasting solutions to pay down the debt and cut government. I encourage you to read my plan to trim government.

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