The main reason politicians are looking to a VAT is that it is easy to conceal. Like the State sales taxes, the Fair Tax shows up on each purchase made. If the rate goes up, you see it on the receipt. Not so the VAT. It’s not “now you see it”, it is “now you don’t”. Europe has the VAT and see where their economies are now.
Excerpt: In a recent interview on these pages (WSJ), presidential candidate Mitt Romney refused to rule out a value-added tax (VAT). He suggested that this hidden form of a national sales tax—which is embedded in the prices of goods and services during the production process—might be appropriate, particularly as a way of financing other tax cuts.
He’s not the only Republican to speak favorably of a VAT. Herman Cain’s 9-9-9 tax plan featured a flat tax and national sales tax. Very few people realized, however, that the final 9 was a VAT. And Rep. Paul Ryan, the chairman of the House Budget Committee and a favorite of the tea party thanks to his bold reforms to modernize Medicare and Medicaid, includes a VAT in his “Roadmap” plan, where it helps finance other reforms such as eliminating the corporate income tax.
What’s going on here?
Most Republican supporters are drawn to the VAT for relatively benign reasons. It is a single-rate system, like the flat tax, for raising revenue, so it does not raise the possibility of class-warfare demagoguery. The VAT also doesn’t hit savings and investment. And there are no distorting and corrupt loopholes. So there’s a lot to like about the levy—or would be, if there were some practicable way of substituting a VAT for taxes on income.
The most important thing to realize is that many people in Washington want bigger government, and a VAT is a necessary condition for that to happen. Simply stated, there is no way to turn America into a European-style welfare state without this new source of revenue.
Unsurprisingly, President Obama is favorably inclined toward a VAT, having recently claimed that it is “something that has worked for other countries.” And yet it’s unlikely that the president would propose a VAT, in large part because he is fixated on class-warfare tax hikes. If he did, almost every Republican in Congress would be opposed, even if only for partisan reasons.
But what if a VAT sympathizer like Mr. Romney wins next November and decides that his plan for a lower corporate tax rate is only possible if accompanied by a VAT? There will be quite a few Republicans who like that idea because they want to do something nice for their lobbyist friends in the business community. And there will be many Democrats drawn to the plan because they realize that they need this new source of revenue to enable bigger government.
That’s a win-win deal for politicians and a terrible deal for taxpayers.
Read full WSJ article here.