{"id":525631,"date":"2010-04-13T06:00:40","date_gmt":"2010-04-13T10:00:40","guid":{"rendered":"http:\/\/washingtonindependent.com\/?p=82035"},"modified":"2010-04-13T06:00:40","modified_gmt":"2010-04-13T10:00:40","slug":"with-vat-tax-on-the-table-progressives-sound-alarm","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/525631","title":{"rendered":"With VAT Tax on the Table, Progressives Sound Alarm"},"content":{"rendered":"<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-large wp-image-82036\" title=\"cash reg\" src=\"http:\/\/washingtonindependent.com\/wp-content\/uploads\/2010\/04\/cash-reg-480x323.jpg\" alt=\"VAT tax\" width=\"480\" height=\"323\" \/><\/p>\n<p>When House Speaker Nancy Pelosi <a id=\"hm4e\" title=\"told  Charlie Rose\" href=\"http:\/\/www.youtube.com\/watch?v=T7R9wYLmzKI\">told Charlie Rose<\/a> last October that a value-added tax  was \u201con the table\u201d as a possible way to solve the nation\u2019s fiscal woes,  the remark didn\u2019t generate much interest. But as recent budget figures  have put the depth of America\u2019s problem into black and white, and with  former Federal Reserve Chairman and White House adviser Paul Volcker  nearly <a id=\"niz.\" title=\"seconding\" href=\"http:\/\/online.wsj.com\/article\/SB10001424052702303720604575170320672253834.html\">seconding<\/a> Pelosi&#8217;s view recently, the  idea of a VAT &#8212; already in use in nearly 160 countries &#8212; is gaining  traction. And some progressives are sounding an alarm.<\/p>\n<p><div id=\"attachment_2754\" class=\"wp-caption alignleft\" style=\"width: 140px\"><img loading=\"lazy\" decoding=\"async\" class=\"size-thumbnail wp-image-2754\" title=\"debt\" src=\"http:\/\/www.washingtonindependent.com\/wp-content\/uploads\/2008\/08\/debt-150x150.jpg\" alt=\"Image by: Matt Mahurin\" width=\"130\" height=\"130\" \/><\/p>\n<p class=\"wp-caption-text\">Image by: Matt Mahurin<\/p>\n<\/div>\n<div class=\"floatButtons\">\n<div style=\"float: left; margin-right: 10px; margin-bottom: 10px;\"><script src=\"http:\/\/digg.com\/tools\/diggthis.js\" type=\"text\/javascript\"><\/script><\/div>\n<div style=\"float: left; margin-bottom: 10px;\"><script type=\"text\/javascript\"\n\tsrc=\"http:\/\/d.yimg.com\/ds\/badge2.js\"\n\tbadgetype=\"square\">\n\t<?php the_permalink(); ?><\/script><\/div>\n<div style=\"float: left; margin-right: 10px;\">\n\t<script type=\"text\/javascript\">\ntweetmeme_source = \"TWI_news\";\ntweetmeme_service = \"bit.ly\";\n<\/script> <script src=\"http:\/\/tweetmeme.com\/i\/scripts\/button.js\" type=\"text\/javascript\"><\/script>\n<\/div>\n<div style=\"float: left;\"><a name=\"fb_share\" type=\"box_count\" href=\"http:\/\/www.facebook.com\/sharer.php\">Share<\/a><script src=\"http:\/\/static.ak.fbcdn.net\/connect.php\/js\/FB.Share\" type=\"text\/javascript\"><\/script><\/div>\n<\/div>\n<p> The  prospect of a VAT is likely to be discussed by the fiscal commission  established by President Obama. The <a id=\"vmap\" title=\"Wall Street Journal\u2019s opinion page\" href=\"http:\/\/online.wsj.com\/article\/SB10001424052748703315004575073612836382730.html\">Wall Street  Journal\u2019s opinion page<\/a> has already sarcastically labeled the  consortium the \u201cVAT Commission.\u201d At a recent event organized by the  Scholars Strategy Network, a left-leaning think tank, an MIT political  scientist floated the prospect of VAT as a solution to the federal  revenue crunch. Volcker just last week <a id=\"j5-i\" title=\"fueled\" href=\"http:\/\/washingtonindependent.com\/81949\/grassley-hits-out-at-value-added-tax\">fueled<\/a> the fire even more, noting that a  VAT tax was not as toxic an idea as it once had been. (Sen. Charles  Grassley, R-Iowa, responded this week by coming out against the tax.)  All the attention has not been welcomed by progressive groups, who worry  that a VAT would unfairly burden the already-struggling working poor.  \u201cIt crushes the low-income and the elderly,\u201d said Robert McIntyre,  director of Citizens for Tax Justice.<\/p>\n<p>Since VAT is a tax on  consumption rather than income or investments, it\u2019s considered a  regressive tax. Poor people, who tend to spend a higher percentage of  their income than wealthier ones, are disproportionately affected by  consumption-based taxes. In the U.S., regressive sales taxes are  balanced out by a progressive income tax structure.<\/p>\n<p>Proponents  of a VAT, though, contend that it wouldn\u2019t hurt lower-income Americans  if implemented properly, and that the additional revenue it generates  would prevent cuts to social-service and welfare programs.<\/p>\n<p>Left-leaning  think tanks such as the Center for American Progress express concern  that adding a VAT to the country\u2019s existing tax code or using it to  replace the majority of the income tax, as Michael Graetz, Columbia  University School of Law professor and author of &#8220;100 Million  Unnecessary Returns: A Simple Fair and Competitive Tax Plan for the  United States,&#8221; proposed to the Senate Finance Committee in 2008, would  tip the balance in favor of the rich and drop a staggering weight on an  already-struggling demographic.<\/p>\n<p>While value-added taxes are  common throughout the rest of the world (including Europe, Canada and  Australia), many Americans are still fuzzy about what exactly this tax  is and how it works. A VAT is essentially a tax on all or nearly all  goods and services. Many European countries exempt certain items such as  groceries from VAT collection \u2014 a mistake, according to economists who  counter that a laundry list of exemptions only serves to make the rate  higher. What makes a VAT different from a sales tax is the way it\u2019s  collected.<\/p>\n<p>The tax is levied on every company that  participates in the development of a product, but each participant gets  credit for the VAT that has already been paid. If a retailer in a  country with a 10 percent VAT buys goods from a vendor, they pay an  extra 10 percent on those goods. That retailer is then responsible for  collecting 10 percent VAT on sales to customers. When each company in  the supply chain pays taxes, though, they get to deduct the VAT they  paid from what their customers paid. These somewhat complicated  mechanics create a lengthy paper trail that thwarts would-be evaders.  Since each company in a supply chain has to collect the tax, there\u2019s  also a certain degree of self-policing.<\/p>\n<p>Although  right-leaning lawmakers tend to favor regressive tax policies, some  conservatives dislike the concept of a VAT because they worry it would  inflate the size of the government. \u201cConservatives think VAT is a hidden  tax and therefore a money machine,\u201d said Gilbert Metcalf, professor of  economics at Tufts University. In reality, analysts say that concern is  overblown. The U.S. debt load has mushroomed so substantially that even  adding a new revenue stream in the form of a VAT wouldn\u2019t generate huge  surpluses.<\/p>\n<p>The cost of Social Security, Medicare and other  entitlement programs is <a id=\"h4p0\" title=\"predicted to skyrocket\" href=\"http:\/\/www.ssa.gov\/OACT\/TRSUM\/index.html\">predicted to skyrocket<\/a> in the coming  decades. \u201cThe largest programs in the budget support older people,\u201d said  Eric Toder, a fellow at the Urban Institute and the Tax Policy Center.<\/p>\n<p>For  the nation\u2019s working poor, that\u2019s bad news, says Will Marshall,  president of the Progressive Policy Institute. \u201cWhat\u2019s happening now is  the automatic growth of entitlement spending is squeezing out space in  the budget for everything else, which includes programs for low-income  families.\u201d<\/p>\n<p>Toder and others dismiss the notion that  ratcheting up existing taxes will be enough to fill the revenue gap.  \u201cYou\u2019re running against how high you can squeeze income tax. You don\u2019t  want to push it too much further. If you tax investment income too high,  we\u2019ll start seeing capital fleeing the U.S.\u201d<\/p>\n<p>If the  administration and Congress do consider a value-added tax, some experts  do hold out hope that it can be levied in such a way that doesn\u2019t  disproportionately impact the disadvantaged. While a VAT itself will  never be progressive, there are ways to offset its burden on the poor.  \u201cThere\u2019s no reason low-income people should bear the burden of getting  our nation\u2019s finances in order,\u201d said Columbia\u2019s Michael Graetz.  \u201cThere\u2019s no inherent reason a VAT has to disproportionately burden  low-income people,\u201d he said.<\/p>\n<p>Offering refundable tax credits  for Americans living below a certain income threshold, for instance,  would help equalize the burden. Graetz also proposed distributing debit  cards similar to those on which food stamps are issued to lower-income  consumers that would exempt a certain dollar amount of purchases from  value-added taxation.<\/p>\n<p>While many of the European VAT  structures exclude necessities like food and clothing in the name of  making the tax more progressive, many analysts say this just makes  administration harder. Exempting certain categories of purchases also  means that the rate on everything else is pushed higher. For instance,  some European countries have VATs of up to 20 percent, a rate that can  be attributed to numerous exemptions.<\/p>\n<p>One of the most  sweeping proposals is that put forth by Graetz, who suggests  implementing a VAT of 10 to 14 percent and eliminating income taxes for  households making less than $100,000 annually. Graetz, who also  co-authored a book lambasting the 2001 repeal of the estate tax,  maintains that his plan would simplify the tax process for 150 million  Americans, and a combination of credits and offsets for lower-income  people would keep them from bearing the brunt of the new tax.<\/p>\n<p>While  Graetz&#8217;s plan is revenue-neutral, he says it offers a better way to  tackle the revenue crunch because a VAT is easier to increase than the  current income tax. It would also relieve many current taxpayers of the  annual burden of preparing and filing their returns. \u201cAmericans feel  better about taxes that they feel they can pay without undue burden,\u201d  Andrea Louise Campbell, a political science professor at the  Massachusetts Institute of Technology, wrote in a <a id=\"jku9\" title=\"recent paper\" href=\"http:\/\/www.scholarsstrategynetwork.org\/pdfs\/Taxes_Americans_Can%20Embrace-Andrea_Campbell.pdf\">recent paper<\/a>. \u201cEasing payment not  only helps public acceptance but also encourages compliance.\u201d There\u2019s  also no way for the wealthy to avoid paying their share via tax shelters  or accounting tricks, since the tax is collected at the point of  purchase. This still isn\u2019t convincing for some progressives. Yes,  credits could offset the burden on America\u2019s poor. But, they argue,  those credits could be rescinded at the whim of a right-leaning  Congress. \u201cOne concern has to be, will there be political pressure to  eliminate those kinds of credits?\u201d said Michael Linden, associate  director of tax and budget policy at the Center for American Progress.  \u201cHaving a VAT replace income tax entirely is a terrible idea,\u201d he said.  \u201cIf VAT becomes a solution it will have to be part of a larger tax  system, ideally part of a larger tax reform effort.\u201d<\/p>\n<p>Graetz  argues that draconian spending cuts in social and support programs would  hurt low-income people more than an incremental tax increase. \u201cYou\u2019ve  got to look not just at the way revenues are collected but at the way  those benefits are distributed,\u201d he said. Credits or exemptions for the  poorest Americans would protect them from paying a higher percentage of  their income towards a VAT, and the revenues raised could keep  social-service programs off the chopping block.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>When House Speaker Nancy Pelosi told Charlie Rose last October that a value-added tax was \u201con the table\u201d as a possible way to solve the nation\u2019s fiscal woes, the remark didn\u2019t generate much interest. But as recent budget figures have put the depth of America\u2019s problem into black and white, and with former Federal Reserve [&hellip;]<\/p>\n","protected":false},"author":5750,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-525631","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/525631","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/5750"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=525631"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/525631\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=525631"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=525631"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=525631"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}