The Wall Street Journal explains the Value Added Tax this way:
"A VAT is essentially a national sales tax that is assessed at each stage of production, with the bill passed along to consumers at the cash register. In Europe the average rate is a little under 20%. In the U.S., a federal VAT would presumably be levied on top of state and local sales taxes that range as high as 10%. Some nations also exempt food, medicine and certain other goods from the tax.
VATs were sold in Europe as a way to tax consumption, which in principle does less economic harm than taxing income, savings or investment. This sounds good, but in practice the VAT has rarely replaced the income tax, or even resulted in a lower income-tax rate. The top individual income tax rate remains very high in Europe despite the VAT, with an average on the continent of about 46%."
With the passage of the multi-billion dollar health care bill, in addition to already high spending levels, Democrats are drowning our nation in debt. The VAT tax lures Democrat support because with a 10% VAT, a potential for one trillion in revenues could be raised. What Democrats fail to realize is that our already struggling economy will be crippled. Small business owners cannot grow if every product they need has been taxed every step of the way.
One of Obama’s closest economic advisors, Paul Volcker, who was also the former Chairman of the Federal Reserve, said last week, a “VAT should be on the table.” He also said a VAT was “not a toxic idea.”
Volcker isn’t the only notable source floating the idea. According to USA Today, Congressional Budget Office director, Doug Elmendorf, said a VAT is being studied
“as part of its ‘strategic planning’ for the future -- one in which the $1.5 trillion budget deficit and $12.5 trillion debt must be addressed by policy makers. ‘Many people in Congress are interested in it,’ Elmendorf said, without specifying who.”