Value-added tax may loom for U.S.

March 26, 2010


— As the night follows the day, the VAT cometh.

With the passage of Obamacare, creating a vast new middle-class entitlement, a national sales tax of the kind near-universal in Europe is inevitable.

We are now $8 trillion in debt. The Congressional Budget Office projects that another $12 trillion will be added over the next decade. Obamacare, when stripped of its budgetary gimmicks — the unfunded $200 billion-plus doctor fix, the double counting of Medicare cuts, the 10-6 sleight-of-hand (counting 10 years of revenue and only 6 years of outflows) — is at minimum a $2 trillion new entitlement.

It will vastly increase the debt. But even if it were revenue-neutral, Obamacare pre-empts and appropriates for itself the best and easiest means of reducing the existing deficit. Obamacare’s $500 billion of cuts in Medicare and $600 billion in tax hikes are no longer available for deficit reduction. They are siphoned off for the new entitlement of insuring the uninsured.

This is fiscally disastrous because, as President Obama himself explained last year in unveiling his grand transformational policies, our unsustainable fiscal path requires control of entitlement spending, the most ruinous of which is out-of-control health care costs.

Obamacare was sold on the premise that, as Nancy Pelosi put it, “health care reform is entitlement reform. Our budget cannot take this upward spiral of cost.” But the bill enacted on Tuesday accelerates the spiral: It radically expands Medicaid (adding 15 million new recipients/dependents) and shamelessly raids Medicare by spending on a new entitlement the $500 billion in cuts and the yield from the Medicare tax hikes.

Obama knows that the debt bomb is looming, that Moody’s is warning that the Treasury’s AAA rating is in jeopardy, that we are headed for a run on the dollar and/or hyperinflation if nothing is done.

Hence his deficit reduction commission. It will report (surprise!) after the November elections.

What will it recommend? What can it recommend?

Sure, Social Security can be trimmed by raising the retirement age, introducing means testing and changing the indexing formula from wage growth to price inflation.

But this won’t be nearly enough. As Obama has repeatedly insisted, the real money is in health care costs — which are now locked in place by the new Obamacare mandates.

That’s where the value-added tax comes in. For the politician, it has the virtue of expediency: People are used to sales taxes, and this one produces a river of revenue. Every 1 percent of VAT would yield up to $1 trillion a decade (depending on what you exclude — if you exempt food, for example, the yield would be more like $900 billion).

It’s the ultimate cash cow. Obama will need it. By introducing universal health care, he has pulled off the largest expansion of the welfare state in four decades. And the most expensive. Which is why all of the European Union has the VAT. Huge VATs. Germany: 19 percent. France and Italy: 20 percent. Most of Scandinavia: 25 percent.

American liberals have long complained that ours is the only advanced industrial country without universal health care. Well, now we shall have it. And as we approach European levels of entitlements, we will need European levels of taxation.

Obama set out to be a consequential president, on the order of Ronald Reagan. With the VAT, Obama’s triumph will be complete. He will have succeeded in reversing Reaganism. Liberals have long complained that Reagan’s strategy was to starve the (governmental) beast in order to shrink it: First, cut taxes — then ultimately you have to reduce government spending.

Obama’s strategy is exactly the opposite: Expand the beast, and then feed it. Spend first — which then forces taxation. Now that, with the institution of universal health care, we are becoming the full entitlement state, the beast will have to be fed.

And the VAT is the only trough in creation large enough.

As a substitute for the income tax, the VAT would be a splendid idea. Taxing consumption makes infinitely more sense than taxing work. But to feed the liberal social-democratic project, the VAT must be added on top of the income tax.

Ultimately, even that won’t be enough. As the population ages and health care becomes increasingly expensive, the only way to avoid fiscal ruin (as Britain, for example, has discovered) is health care rationing.

It will take a while to break the American populace to that idea. In the meantime, get ready for the VAT. Or start fighting it.

— Charles Krauthammer is a columnist for Washington Post Writers Group. letters@charleskrauthammer.com


independant1 8 years, 2 months ago

Note, besides, that it is no more immoral to directly rob citizens than to slip indirect taxes into the price of goods that they cannot do without. (Albert Camus)

Paul R Getto 8 years, 2 months ago

Actually, properly structured, this could work as a substitute for many other taxes. Say, for example, we put 30% on everything except basic foods and prescription drugs. If you buy a sack of flour, it's a dollar. If you buy a $1 slice of pizza, it's $1.30. Eliminate all income taxes, taxes on earned investment income and many others. If you can afford a $10,000 car, you can budget for and afford $13,000. Don't like paying taxes? Put your money in the bank. This would also tap much of the underground economy and those folks would chip in too. Right now, they stay 'off the books' for the most part. I'd like to see someone cost this out. In a $15,000,000,000,000 economy, would it raise 5-6 trillion a year? That's bigger than the current federal budget estimates.

just_another_bozo_on_this_bus 8 years, 2 months ago

There are two easy ways to reduce our national debt-- end or drastically reduce all forms of corporate welfare, and cut military spending by 80% (which would still leave us with the largest military in the world, with plenty of money to fund a true "Defense" Dept.)

But you'll never see Krauthammer propose such things.

georgiahawk 8 years, 2 months ago

Is the sky still falling? I thought it already fell earlier this week!

Why is it that it is alright for wealth distribution to go from the poor to the rich because that is the way of our sacred free-enterprise system (that I believe Christ first taught), but it is immoral and even Marxist for the opposite to happen. I say redistribute, I deserve more! The rich have been getting extraordinarily richer for the last 30 years, let me have a turn at this redistribution thing!

SettingTheRecordStraight 8 years, 2 months ago

Krauthammer makes a great point that the government will reduce spending (supposedly on Medicare) and increase taxes (obviously). But all this new money for the government won't be used to pay down our national debt; it will fund a brand new, trillion dollar entitelment.

imastinker 8 years, 2 months ago

A consumption tax makes much more sense than an income tax, as it allows all people to grow wealth without punishing income. That said, I'll fight any new tax tooth and nail. The way to fix our deficit is to cut spending drastically and lower taxes somewhat less drastically.

gravitykills 8 years, 2 months ago

Businesses around the country are calculating upwards of $100 million costs as a result of the new health care. Unless these businesses pick up the tab for insurance premiums for their employees, I don't see how they can project such high increases.

If it is true, not only are we going to be taxed on goods and services, the price of goods and service will substantially increase.

Common sense!

Paul R Getto 8 years, 2 months ago

"There are two easy ways to reduce our national debt-- end or drastically reduce all forms of corporate welfare, and cut military spending by 80% (which would still leave us with the largest military in the world, with plenty of money to fund a true "Defense" Dept.)" === Good point, Bozo, but don't hold your breath. We have ignored Ike's warning for decades, now the goodies are made in nearly every congressional district, even if it's just a few high-tech devices that go into larger units.

KS 8 years, 2 months ago

Get rid of the IRS and the income tax and I could support a VAT. Eliminating the income tax will never happen, however. Get ready to pay, pay, pay and pay again. Some folks just never learn that you can't keep spending money without paying it back. We need a regime change in Washingotn, DC.

gravitykills 8 years, 2 months ago

2020: 1 Mexican peso = 0.57985 U.S. dollars; 1-gallon milk = $6.99; 20% VAT; pay raise the last 10 years... $0.00

somedude20 8 years, 2 months ago

I would say think of all the money that has been wasted in Iraq but the all of the dead American service members trumps that! This spending of money is going to prolong and save many many lives.

Bush-spend and kill Obama- spend and save lives.

$975,621,919,906 money spent in Iraq as of 9:19am 3/26/10

somedude20 8 years, 2 months ago

^ should have said the cost of both wars

gravitykills 8 years, 2 months ago

Pull out of Iraq & Afghanistan... use those forces for homeland defense, including our southern border (employ American troops vs deploy). Peso = 0.47985 US dollars, 2020.

jeremyhay 8 years, 2 months ago

We here in Europe pay VAT - not that dissimilar to sales taxes in the US. It's not a problem. It's a tax on the ultimate consumer and ranges from 0 to 20%, depending on the country. Most businesses charge it on their outgoings and reclaim it from their incomings. It's difficult to avoid for end consumers, who pay zero or low rates of VAT on "essentials" (normal food, transportation, health, education, children's clothing). Krauthammer doesn't like it because it means that VAT on a Cadillac would be higher than that on a Ford Fusion. It's not an alternative to income tax - but one way, at least, of taking the lower earners out of the need to pay income tax, should the government wish. But Krauthammer sheds tears for for the Cadillac buyer - and has no interest in why http://www.salon.com/life/pregnancy/index.html?story=/mwt/broadsheet/2010/03/26/maternal_mortality_amnesty_international there is a crisis in US maternal mortality - but, hey, that mostly affects the blacks.

Orwell 8 years, 2 months ago

I'm sure the uber-rich would be happy for the working stiffs to carry a bigger share of the tax load. As a proportion of income, the rich will be taxed significantly less than most. Yeah, what a great idea.

independant1 8 years, 2 months ago

I can make a firm pledge, under my plan, no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes. (Barack Obama)

Flap Doodle 8 years, 2 months ago

The people who work must be taxed more to support the growing numbers of people dependent on the government.

Commenting has been disabled for this item.