Acknowledging it would be a highly unpopular move, White House economic adviser Paul Volcker said yesterday the United States should consider imposing a “value added tax” similar to those charged in Europe to help get the deficit under control.
A VAT is a national sales tax that, like state and city sales taxes, would be collected by retailers.
Volcker, at the New-York Historical Society, told a panel on the global financial crisis that Congress might also have to consider new taxes on carbon and energy.
“The President has passed historic tax cuts for middle-class families and continues to push for more tax cuts. The President is not proposing to cut the deficit at the expense of middle-class families,” said a White House official asked for comment.
The VAT suggestion was immediately met with outrage by Republicans.
“It shouldn’t surprise anyone that the Obama White House would advocate a European-style tax to help finance their European-style government health-care plan,” said Brian Walsh, a spokesman for the National Republican Senatorial Campaign Committee.
“When you hear things like this, though, it’s almost as if the Democrats think the American people will forget that we’re in this situation because of their reckless spending agenda.”
Volcker, a former chairman of the Federal Reserve, told the global economic panel that a VAT is “not as toxic an idea as it has been in the past.”
He added, “If, at the end of the day, we need to raise taxes, we should raise taxes.”
The tax has long had backing from House Speaker Nancy Pelosi (D-Calif.), who last year said it is “on the table” for dealing with the country’s fiscal woes.
Some say the tax can be a good way to raise money because — depending on how it’s imposed — the burden does not have to fall on the consumer alone.
A VAT can also be imposed down the line on manufacturers, producers and any other business that adds value — as well as retailers.
Presumably, each could be asked to pay a smaller amount, since the burden would be spread out.
Also, since the government would be collecting at each step of the manufacturing process, if a retailer cheated, the taxman wouldn’t be left completely in the cold, because levies would have been collected at earlier steps leading up to the sale.
A major reason the tax is so hated is that it does not eliminate sales taxes, but is charged on top of them.
It’s a quick way for governments to raise cash, but the tax could wind up being a burden on the poor, critics say.
The VAT idea has percolated in Washington over the years, but lawmakers have always resisted it.
The US budget deficit is expected to reach $1.5 trillion in fiscal 2010. With Reuters