NCPA - National Center for Policy Analysis


April 22, 2010

A value-added tax, or VAT, would be a huge new tax on all levels of income, including the poor and the middle class.  That, even as Americans have made it clear in poll after poll that they feel overtaxed -- and that government spending is the problem.  And they're right, says Investor's Business Daily (IBD). 

To eliminate expected deficits of $12 trillion over the next 10 years, the VAT would have to be enormous, says IBD: 

  • It's been estimated that a 5 percent VAT would generate $250 billion in annual revenues.
  • So to get rid of the $1 trillion annual deficits expected through 2020 would require a value-added tax of 20 percent; and that's in addition to all the taxes we already pay at every level of government.  

Such a tax burden would kill innovation, jobs and economic growth.  Our economy would be more like those of the stagnant, debt-ridden European Union, where the VAT averages close to 20 percent, says IBD. 

A Chamber of Commerce study suggests that spending in countries with a VAT grows 45 percent faster than in non-VAT countries.  A VAT, it seems, emboldens money-drunk politicians to spend even more on expanding the welfare state, says IBD. 

That's why, as unpopular as it is, Democratic politicians in the White House and Congress can't quite let go of the idea.  White House spokesmen have insisted no VAT is in the cards, but President Obama on Wednesday left the door open, saying, "I want to get a better picture of what our options are." 

It's not hard to figure out why, says IBD: 

  • According to the American Institute for Economic Research, federal tax revenues in 2009 shriveled by $400 billion from the year before to the lowest level of taxes as a share of gross domestic product (GDP) -- 15 percent -- since 1950.
  • That's a huge revenue hole, and it comes at a time when total federal spending through 2020 is expected to surge nearly 70 percent to $45 trillion; to fill the hole, Washington wants more of your money. 

Source: Editorial, "Will They Take 'No' As Answer To VAT?" Investor's Business Daily, April 22, 2010. 

For text:


Browse more articles on Tax and Spending Issues