Nicole Neily

Question: what do boiling oil and a new scheme to further fleece the American people have in common?

Answer: they’re both administered by a VAT.

With a $1.4 trillion deficit in 2009, a national debt of $12.8 trillion and counting, and inflation looming, the nation’s economic situation is dire. Yet rather than cutting spending or actually enforcing PAYGO rules (how quaint!), it appears that the Administration would rather float a new consumption-based national sales tax, known as the value-added tax – or VAT – to address its cash flow problem. Through a VAT, companies pay taxes for the value “added” to a product at each stage of production. But eventually those costs just get passed on to consumers, so ultimately you and I will pay the VAT. Take, for example, building a chair. One man hammers a few pieces of wood together to make the seat and back: value added. The next guy puts on the legs? Value added. A third man attaches a cushion before it’s sold? Value added. If something so simple can be subject to three taxes that easily, you can only imagine the number of additional layers of unseen taxes that consumers will have to fork out their hard-earned money for.

A national sales tax has been promoted by some conservatives as a “Fair Tax,” and a way to improve how the government collects revenue. Yet there's an important distinction between the Fair Tax folks and those you are pushing a VAT today: Fair Tax supporters want to replace the federal income tax with a sales tax, while the VAT proposed by Madame Speaker and friends would add to Americans’ existing tax burdens (which is already about to grow considerably as a result of the new health care law and the pending expiration of the Bush tax cuts.) CBO director Doug Elmendorf recently acknowledged that his office has received several questions on the VAT – certainly a precursor to a bill being proposed in Congress.

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On April 6, White House advisor Paul Volcker, former chairman of the Federal Reserve, tacitly endorsed the idea, asserting recently that it was “not as toxic an idea” as it once was.

Yet the idea should be toxic: For starters, it’s doubtful whether additional resources would even be used to pay down our debt. As we saw in the health care debate, policymakers are willing to game numbers in an attempt to appear fiscally responsible, but ultimately the new law added numerous new programs which will add to the federal government's already massive unfunded liabilities. It's clear Washington is focused on growing government, not paying down debt.

Nicole Neily

Nicole Neily is a Senior Fellow at the Independent Women’s Forum.