Are You Ready for a VAT?

Remember when Barack Obama pledged he wouldn't raise taxes on anyone who made under $250,000? Remember when the Tax Day Tea Parties were all a bunch of nonsense because Barack Obama had yet to raise anyone's taxes? Perhaps the protesters were more prescient than they're given credit for.

While their critics were indulging in the fantasy of a liberal president with a projected $9.3 trillion deficit over the next 10 years and a hankering to socialize the health care system who resorts to something other than tax hikes to pay for it all, the tea partiers were residing in the real world. In that world, a liberal president with a $9.3 trillion deficit, looming entitlement disasters, and dreams of creating a universally crappy but expensive health care system, floats a value-added tax. This is what "fundamental tax reform" might look like under a Democratic Congress and president:

Common around the world, including in Europe, such a tax -- called a value-added tax, or VAT -- has not been seriously considered in the United States. But advocates say few other options can generate the kind of money the nation will need to avert fiscal calamity.

At a White House conference earlier this year on the government's budget problems, a roomful of tax experts pleaded with Treasury Secretary Timothy F. Geithner to consider a VAT. A recent flurry of books and papers on the subject is attracting genuine, if furtive, interest in Congress. And last month, after wrestling with the White House over the massive deficits projected under Obama's policies, the chairman of the Senate Budget Committee declared that a VAT should be part of the debate.

"There is a growing awareness of the need for fundamental tax reform," Sen. Kent Conrad (D-N.D.) said in an interview. "I think a VAT and a high-end income tax have got to be on the table."

The White House claims in the story that a VAT is "unlikely to be in the mix" for paying off Obama's health care costs, but if personnel is policy, we should be afraid:

Still, Orszag has hired a prominent VAT advocate to advise him on health care: Ezekiel Emanuel, brother of White House chief of staff Rahm Emanuel and author of the 2008 book "Health Care, Guaranteed." Meanwhile, former Federal Reserve chairman Paul A. Volcker, chairman of a task force Obama assigned to study the tax system, has expressed at least tentative support for a VAT.

Fed Chairman Paul Volcker has also endorsed Yale professor Michael Graetz's suggestion that a 10-14-percent VAT would exempt families making under $100,000 from the income tax and lower rates for others as "a sensible plan for reform."

When conservatives and libertarians have pushed for a national sales tax-the Fair Tax, as its called by proponent Neal Boortz- the tax is designed to take the place of an income tax, and some supporters even suggest repealing the 16th amendment to insure that Americans don't get stuck paying both the sales tax and an income tax.

Alas, that latter nightmare scenario is exactly what the VAT-touters are pitching, albeit with vague promises of what we'll get in return:

Emanuel argues in his book that a 10 percent VAT would pay for every American not entitled to Medicare or Medicaid to enroll in a health plan with no deductibles and minimal copayments...

And in a paper published last month in the Virginia Tax Review, Burman suggests that a 25 percent VAT could do it all: Pay for health-care reform, balance the federal budget and exempt millions of families from the income tax while slashing the top rate to 25 percent. A gallon of milk would jump from $3.69 to $4.61, and a $5,000 bathroom renovation would suddenly cost $6,250, but the nation's debt would stabilize and everybody could see a doctor.

Remain extremely skeptical, folks. No matter how much lovely alliteration Obama uses to describe this plan, it's just another pathway into your wallet for the federal government. It's just another source to tap for revenue when they're unwilling to make "tough choices." It will go up and up, and the relief the nation sees on the corporate income tax or the income tax as a trade-off will be precious little in the Congress we've got now.

It should also be noted that the VAT costs $3 billion just to collect in Canada, according to the National Post, on top of the added cost to every single item you buy, every day.