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Big Brother picks your pocket

Posted: Thursday, May 20, 2010

White House tape transcription 16-05-10, 1600 hours, Oval Office. Present: President OBAMA. Vice president BIDEN. House Speaker PELOSI. Chief economic planners MALIA and SASHA.

MALIA: Daddy, it's great that you're raising everybody's allowance. But The Wall Street Journal says that the national debt is about to hit $13.8 trillion. How are you going to pay for that? Are we going to have to sell Bo?

OBAMA: Dammit, Joe, you're fired as the First Bedtime-Story Reader!

SASHA: Oh, Daddy, don't do that! We love Uncle Joe's scary stories - remember the one about how we were all going to die of the swine flu?

BIDEN: Girls, you forgot to tell your dad that the deficit story had a happy ending, where we raise taxes 25 percent to pay for everything.

OBAMA (snorting): Great idea, Joe. Why don't we just call the legislation the Tea Party Recruitment Act of 2010?

PELOSI: Mr. President, what if I told you we could raise everybody's taxes 25 percent and they wouldn't even notice?

OBAMA (intrigued): Is this like one of those Vegas hypnotist shows where the guy gets women to take their clothes off? Bill Clinton is always raving about those.

PELOSI: This is even better. It's called the value-added tax. Dick Nixon explained it to me.

MALIA Progressive politicians taking policy advice from Nixon - now that's a scary bedtime story!

Yes, boys and girls, a Nixon boogeyman has returned to haunt us, and the Obama administration summoned it back from the grave. For the past several weeks, White House henchmen such as Pelosi, Paul Volcker, John Podesta and Democratic Senate budget committee chair Kent Conrad have been talking up the value-added tax (VAT) as a way to resolve the debt crisis that they helped create.

The president has done nothing to discourage the talk. Asked directly about the possibility of a VAT during an interview with CNBC, Obama blandly replied: "That is something that has worked for some countries."

When Obama and other spend-first, ask-questions-later politicians say the VAT "works," what they mean is it permits them to enact voracious tax increases in nearly invisible ink. Unlike income tax, which shows up as a specific deduction on your pay stub, or sales tax, clearly marked on your receipt, the VAT is a stealth bomber that swoops in without showing up on the radar.

With a VAT, goods are taxed not just when a consumer buys them but at every single step of production. That pair of jeans you pick up at The Gap would have been taxed when the fabric was milled, when it was dyed, when it was cut, when it was sewed and when it was purchased wholesale by the store.

Now that pair of jeans you would have bought for $50 will cost $60. But because each tax payment was built into the price paid by the next business along the production chain, you won't really know that it's the government that jacked up your cost.

The subtleties of the VAT mean the government can collect staggering amounts of money - the Congressional Research Service estimates each percentage point of an American VAT would bring in $50 billion - with little notice from the public. When European governments started using the VAT, it was generally set at 10 percent or lower. These days it usually runs between 20 percent and 25 percent.

A federal VAT would impose on top of state and city sales taxes, which run over 10 percent in some parts of the United States. So your money - which was probably already taxed 25 percent to 28 percent as income - will now be hit by another tax of nearly 30 percent when you spend it.

The VAT was invented in France in 1948, which is why anti-tax lobbyist Grover Norquist likes to say that "VAT is French for big government." When politicians have such vast sums at their command, they come up with creative ways to spend them.

Before the VAT went into widespread use there in the mid-1960s, government spending in Europe's industrialized countries amounted to about 30 percent of their gross domestic product. Four decades later, it's 47 percent and climbing.

As much as Obama supporters may like the idea of handing over half of America's wealth to the government, they ought to think twice before unleashing this tax holocaust. One good reason is the VAT's political antecedents: Its first big U.S. advocate was Richard Nixon. (The thwarting of his plan is the brightest silver lining of the Watergate scandal.)

Another is that the VAT is as regressive as taxes can possibly come; poor people who largely escape income taxes will be hammered by such a giant levy on consumption. And a third is that imposition of a VAT would make Barack Obama the most notorious liar in the history of American politics. Remember his promise not to raise taxes on anybody earning less than $250,000 a year? Of course, Obama might be able to slip out of that by borrowing something else from Nixon. What was it he used to say? "That statement is inoperative."

Glenn Garvin is a columnist for the Miami Herald. Readers may write to him via e-mail at ggarvin@miamiherald.com.



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