Obama’s New Economic Advisor Advocated Value Added Tax

August 29, 2011 - 2:56 PM

Krueger

Princeton economist Alan B. Krueger, nominated by President Barack Obama to head the president's Council of Economic Advisers. (AP Photo)

Washington (CNSNews.com) – President Barack Obama’s nominee to chair the President’s Council of Economic Advisors has supported a European-style consumption tax that taxes every stage of production for a good or service, a policy generally called a Value Added Tax, or VAT.

Alan Krueger, a Princeton University economist, called for the Value Added Tax in a commentary for the New York Times in January 2009. The White House, however, has said that President Obama would not consider such a tax.

“Why not pass a 5 percent consumption tax to take effect two years from now? There are many different ways to implement a consumption tax, but for simplicity think about a national sales tax,” Krueger wrote in the Times piece published on Jan. 12, 2009, shortly before Obama took office.

The consumption tax differs from a “Fair Tax” proposal or national sales tax proposal that has been considered in recent years by U.S. politicians who want to replace the income tax. The VAT would be a levy that adds to the current tax structure.

“In the long run, a 5 percent consumption tax would raise approximately $500 billion a year, and fill a considerable hole in the budget outlook,” Krueger wrote.

He added that the consumption tax has a downside, but would likely be the easiest way to increase taxes.

“The main downside of this proposal is that taxes reduce economic activity,” wrote Krueger. “But the government must make critical trade-offs, and a consumption tax could be the most efficient means to raise revenue to finance essential government functions.”

“Another downside is that a consumption tax is a greater burden for the poor, who spend a relatively high share of their income,” said Krueger.

In announcing the nomination on Monday, Obama praised Krueger’s knowledge and experience.

“Alan brings a wealth of experience to the job,” said Obama. “He’s one of the nation’s leading economists. For more than two decades, he’s studied and developed economic policy, both inside and outside of government. In the first two years of this administration, as we were dealing with the effects of a complex and fast-moving financial crisis -- a crisis that threatened a second Great Depression -- Alan’s counsel as chief economist at the Treasury Department proved invaluable.”

If confirmed by the Senate, Krueger would succeed Austan Goolsbee as the chairman of the Council of Economic Advisers. Before Goolsbee, Christina Romer held the position under Obama, as the administration struggled to improve the U.S. unemployment picture, which currently stands at 9.1 percent.

“I rely on the Council of Economic Advisers to provide unvarnished analysis and recommendations, not based on politics, not based on narrow interests, but based on the best evidence -- based on what’s going to do the most good for the most people in this country,” said Obama. “And that’s more important than ever right now.”

“We need folks in Washington to make decisions based on what’s best for the country, not what’s best for any political party or special interest,” he said. “That’s how we’ll get through this period of economic uncertainty, and that’s the only way that we’ll be able to do what’s necessary to grow the economy.”