The silent economic killer: Obama’s VAT proposal

Dick Morris's picture

When conservatives like Neal Boortz proposed the “fair tax” (a levy on consumption, not on income), we should have known that the Barack Obama left would seize on the proposal not as Boortz intended it to be — a replacement for the income tax — but as an addition to it. Now Obama has let it be known that the value-added tax, or VAT, is “on the table” as he casts about for taxes to lock in his gigantic levels of federal spending.

At stake, of course, is our free-market system. When Obama took office, federal, state and local spending accounted for 30 percent of gross domestic product. Now it is up to 35 percent, and when health care is fully implemented, it will rise to above 40 percent. But taxes are still below 30 percent. The difference is the deficit, now grown to 10 percent of our GDP.

If our government is to continue spending 40 percent of our GDP, we will morph into the European model of a socialist democracy. But if we can roll the spending back to 30 percent, while holding taxes level, we will retain our free market system.

In 2011, we will have three choices:

• Raise taxes up to 40 percent.

• Cut spending down to 30 percent.

• Or half and half.

Now Obama proposes the ultimate step to convert us into a European nation: the VAT.

The VAT is levied at each stage of a commercial transaction. So the raw material seller charges the manufacturer, who then adds a new tax onto the price when he sells his finished product to a retailer, who then adds on a new levy when he sells it to a customer.

And the customer doesn’t know it.

When you buy something for $10 and the clerk asks for “$10.65, please,” you know that you are paying a 6.5 percent sales tax. But when $4 of hidden value-added taxes cause the item to cost $14, you pay the $14 without knowing that it includes the extra tax.

A key reason Europeans stay leftist is that they don’t realize how much they are paying in taxes since it is hidden in the price of the products they buy.

And, in Europe, as Obama proposes in the U.S., the VAT does not replace the income tax, it just supplements it.

High VATs and high taxes on the top bracket of income exist unhappily side by side in Europe. Value-added taxes average 20 percent on the continent, while top income tax rates are all still in the 40-50 percent range.

The battle over how to pay down the deficit is looming in Washington. Some liberals boldly promise to raise taxes and proclaim their willingness to take the heat for the decision. But now Obama has offered them a more palatable alternative — raise taxes by increasing the VAT and hide it from the public by burying the tax into the purchase price of the product.

Left in the dust, of course, is Obama’s signature pledge not to raise taxes on the “middle class.” The VAT, which is levied every time anyone buys anything, falls on every citizen.

Of course, Obama could keep his pledge by the simple expedient of requiring everyone who makes more than $200,000 to be branded on their forehead with a big $ sign so that the clerk will know to charge him the VAT. But, perhaps that might be a bit too much, even for him!

[Dick Morris and Eileen McGann are authors of the new book “2010: Take Back America — A Battle Plan.” Morris, former political consultant and pollster, writes a nationally syndicated political column and provides commentary for Fox News.]

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