Taking Names in the Senate on a VAT

The push to pile on American entrepreneurs, businesses and consumers with a value-added tax (VAT) took a welcome hit last week.

An editorial in the April 20 Wall Street Journal titled “The Toxic VAT” explained: “Bipartisanship has broken out in the Senate, not that the media bothered to notice. Last week John McCain introduced a resolution stating that ‘It is the sense of the Senate that the Value Added Tax is a massive tax increase that will cripple families on fixed income and only further push back America's economic recovery.’ The resolution passed 85 to 13.”

Who voted against this bit of economic sanity? As the Journal reported: “Republican George Voinovich of Ohio, and a dozen Democrats: Daniel Akaka (Hawaii), Jeff Bingaman (N.M.), Sherrod Brown (Ohio), Robert Byrd (W.Va.), Ben Cardin (Md.), Byron Dorgan (N.D.), Ted Kaufman (Del.), Carl Levin (Mich.), Jack Reed (R.I.), Tom Udall (N.M.), James Webb (Va.) and Sheldon Whitehouse (R.I.).”

Take note.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

The VAT is Bad Policy and Bad Economics

The buzz in the United States for imposing a value-added tax, or VAT, grows louder. Entrepreneurs, investors, workers and consumers - indeed, anyone worried about the overall well-being of our nation - should be very concerned.

Not surprisingly, the big government crowd wants a VAT as another tax to fuel their big spending ways. For those who believe that federal budget deficits are the core economic problem - without considering the causes of these deficits - are speaking of a VAT as well...

Read the entire SBE Council Cybercolumn by chief economist Ray Keating here.

SBE Council Comments on Volcker's VAT Idea

The Small Business & Entrepreneurship Council (SBE Council) expressed concern and alarm regarding serious consideration that is being given to the imposition of a value-added tax (VAT) on U.S. businesses. According to the advocacy group representing entrepreneurs, tax system changes need to provide greater relief, simplicity, and clarity. A VAT, however, works against those key principles.

SBE Council chief economist Raymond J. Keating said, "The VAT tax would be bad for everyone, especially small businesses. A VAT is a very dangerous levy. Imposed at each level of production, it hits businesses hard. And given that it is hidden from consumers, it turns out to be a relatively easy tax to increase. The VAT, especially on top of an income tax, builds up government while crushing the entrepreneurial sector of our economy."

According to various reports, Paul Volcker, who heads up President Barack Obama's tax reform commission, is talking up the idea of raising taxes, including the possibility of imposing a VAT. SBE Council says that such a tax would damage U.S. competitiveness, investment and job growth.

"The VAT idea is grossly misguided," Keating adds. "Paul Volcker deserves enormous credit for reining in the inflation of the 1970s and early 1980s as Fed chairman, but when it comes to tax policy in the twenty-first century, his strategies will sink the economy."

SBE Council Karen Kerrigan observed, "There is little positive to say about a VAT - especially if it were to be levied on top of our currently burdensome and complex tax system. Compliance burdens and cost would be high for business, especially small businesses, and in an age where transparency is becoming increasingly important, a VAT works against such clarity."

For more information on tax reform, including the VAT, SBE Council's guide - "Renewing the Great Tax Debate: Tax Increases, Tax Relief, and Tax Reform" by Raymond J. Keating - can be accessed by clicking here.

Pelosi and the VAT

Well, what a surprise! House Speaker Nancy Pelosi is open to imposing a value-added tax (VAT) on U.S. businesses and consumers.

According to TheHill.com:

A new value-added tax (VAT) is "on the table" to help the U.S. address its fiscal liabilities, House Speaker Nancy Pelosi (D-Calif.) said Monday night. Pelosi, appearing on PBS's "The Charlie Rose Show" asserted that "it's fair to look at" the VAT as part of an overhaul of the nation's tax code. "I would say, Put everything on the table and subject it to the scrutiny that it deserves," Pelosi told Rose when asked if the VAT has any appeal to her.

The big dream for those favoring big government getting much bigger is to impose a VAT – a tax that is imposed on the value added at each stage of production – along side an income tax. The income tax and the VAT serve as high-octane fuel for growing government. The great danger in a VAT is that it is hidden from consumers and individual taxpayers, making it a very easy tax to impose and increase.

The Pelosi VAT dream, of course, would wreak havoc on U.S. businesses, consumers and economy.

Congress should be looking for ways to provide pro-growth tax relief that will spur entrepreneurship, investment, economic growth, and job creation. Instead, though, the House speaker is dreaming up ways to do more economic damage.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council