Obama Won’t Rule Out Value Added Tax
April 22, 2010 - 4:57 AMOn Wednesday, President Obama discussed a value added tax in a television interview and White House Press Secretary Robert Gibbs did not give a definitive answer when pressed by reporters on whether Obama would rule one out.
Obama himself--in an interview with CNBC on Wednesday – refused to rule out a VAT:
“I know that there's been a lot of talk around town lately about the value-added tax," Obama told CNBC’s John Harwood. “That is something that has worked for some countries, and something that would be novel for the United States, and before I start saying, 'This makes sense or that makes sense,' I want to get a better picture of what our options are.”
Obama's spokesman also was pressed on the issue Wednesday.
White House Press Secretary Robert Gibbs repeated his assertion, first made on Monday, that President Obama is not currently considering such a tax. But he did not give a definitive answer when pressed by reporters on whether the president would rule out a VAT if a fiscal commission appointed by the president recommends it.
“The debt commission, I think, meets later in the month. The president will open by speaking to them, and we look forward to their recommendations,” Gibbs told reporters. “The deficit commission, as you know, is comprised of Democrats and Republicans that will come forward with bipartisan recommendations, and the president looks forward to those recommendations.”
The president directed the bipartisan fiscal commission to come up with recommendations to deal with the escalating national debt and deficits. It is chaired former Clinton White House Chief of Staff Erskine Bowles, a Democrat, and former Sen. Alan Simpson, a Wyoming Republican.President Obama’s budget proposal for fiscal year 2011 assumes a deficit of $3.8 trillion. The Congressional Budget Office has estimated that his fiscal 2011 budget proposal will require $9.8 trillion in new federal borrowing over the next ten years, and that the national will climb to $20.3 trillion by 2020, nearly 90 percent of Gross Domestic Product, according to the Congressional Budget Office.
Before Obama signed the national health care law offering federal insurance subsidies to all Americans making less than 400 percent of the poverty level ($88,200 for a family of four), the Treasury Department reported that the Medicare system already faced a $37 trillion shortfall over the next 75 years. The Peter G. Peterson Foundation has estimated that the total unfunded liabilities of the federal government now equal $62.3 trillion--or more than $200,000 for every man, woman and child in the United States.
A VAT taxes goods and services at every step of production, whenever value is added to them, such as when rubber is processed and then when it is turned into a tire, and so on down the line to the tire store where it is sold to the customer.
If a VAT is imposed, it would be another violation of the president’s pledge as a candidate not to increase “any taxes” on households earning less than $250,000 annually.
At Wednesday’s White House briefing, a reporter suggested that Gibbs had left the door open for a VAT.
“It’s a great Washington thing to not say something, which means something else,” Gibbs said. “I’m not prejudging anything the commission does. I think to get into the hypothetical of pre-judging a commission that hasn’t yet had its first meeting is sort of a silly thing to do.”
The reporter asked, “So you won’t rule it out?” Gibbs chuckled and said, “I appreciate the opportunity.”
Obama’s economic advisor Paul Volcker, a former Federal Reserve chairman, suggested in early April that the VAT should be on the table and “was not as toxic an idea” as it has been in the past. (See earlier story)Other Democratic leaders who advocate a VAT on top of all other existing taxes include House Speaker Nancy Pelosi (D-Calif.) and Sen. Kent Conrad (D-N.D.), as well as White House adviser Ezekiel Emanuel and Obama transition team leader John Podesta, who heads the liberal Center for American Progress.
In his weekly radio address on April 10, President Obama appeared to hedge on his campaign pledge to not raise any taxes on Americans earning less than $250,000. He has started talking specifically about “income” taxes – rather than taxes in general.
“And one thing we have not done is raise income taxes on families making less than $250,000,” Obama said on April 10. “That’s another promise we’ve kept.”
Again on April 15, the president said, “And one thing we haven’t done is raise income taxes on families making less than $250,000 a year -- another promise that we kept.”
As a candidate during a Sept. 12, 2008 campaign rally in Dover, N.H, Obama said: “And I can make a firm pledge: Under my plan, no family making less than $250,000 will see their taxes increase—not your income taxes, not your payroll taxes, not your capital gains taxes, not any of your taxes.”
In fact, the $1-trillion health care overhaul bill contains at least 12 taxes and fees that will affect households earning less than $250,000. (See earlier story) The president also signed into law a tax hike on tobacco.
The New York Times’ “Caucus blog” reported on Sunday, April 18, that Obama’s economic team sees a 5-percent value added tax as a way to generate enough revenue to achieve its goal of deficit reduction, while preserving Social Security benefits for Baby Boomers nearing retirement – and simultaneously allowing a reduction in corporate tax rates, which Republicans favor.
Conservative economist Thomas Sowell wrote, “The advantage of this kind of tax, from the standpoint of the officials who impose it, is that the total amount that the taxes add to the final price paid by the consumer is not apparent, as it is with a sales tax, for example.”
Sowell then explained the appeal of a hidden tax: “In general, the less visible a tax is, the more revenue can be collected without resistance or electoral retribution by the voters.”
He noted that many European countries use a value-added tax as “a major source of revenues,” Sowell added.