NCPA - National Center for Policy Analysis


May 26, 2010

For the past several weeks, Nancy Pelosi, Paul Volcker, John Podesta and Democratic Senate budget Committee Chair Kent Conrad have been talking up the value-added tax (VAT) as a way to resolve the debt crisis that they helped create, says columnist Glenn Garvin. 

The president has done nothing to discourage the talk.  Asked directly about the possibility of a VAT during an interview with CNBC, Obama replied: "That is something that has worked for some countries." 

When Obama and other liberal politicians say the VAT "works," what they mean is it permits them to enact voracious tax increases in nearly invisible ink, says Garvin: 

  • Unlike income tax, which shows up as a specific deduction on your pay stub, or sales tax, clearly marked on your receipt, the VAT is a stealth bomber that swoops in without showing up on the radar.
  • With a VAT, goods are taxed not just when a consumer buys them but at every single step of production.
  • For example, that pair of jeans you pick up at the Gap would have been taxed when the fabric was milled, when it was dyed, when it was cut, when it was sewed and when it was purchased wholesale by the store.
  • Now that pair of jeans you would have bought for $50 will cost $60; but because each tax payment was built into the price paid by the next business along the production chain, you won't really know that it's the government that jacked up your cost. 

The subtleties of the VAT mean the government can collect staggering amounts of money, says Garvin: 

  • The Congressional Research Service estimates each percentage point of an American VAT would bring in $50 billion -- with little notice from the public.
  • When European governments started using the VAT, it was generally set at 10 percent or lower; these days it usually runs between 20 percent and 25 percent. 

A federal VAT would be imposed on top of state and city sales taxes, which run over 10 percent in some parts of the United States.  So your money -- which was probably already taxed 25 percent to 28 percent as income -- will now be hit by another tax of nearly 30 percent when you spend it, says Garvin. 

Source: Glenn Garvin, "Big Brother picks your pocket," Jewish World Review, May 25, 2010. 

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