Friday, April 23, 2010
McCain, the Beast and the value-added tax
by J. D. Foster
April 22, 2010
The Washington Times
The Obama spending surge is not merely the result of the recession and typical Washington fiscal profligacy. It is step one in President Obama's unannounced strategy often called "Glut the Beast." And the capstone to this strategy involves maneuvering the country into accepting a massive new value-added tax.
Sen. John McCain, Arizona Republican, decided not to wait on Mr. Obama's pleasure in calling for a value-added tax, so on April 15 Mr. McCain offered a sense of the Senate resolution that read simply:
"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 tally: 85 senators stood with American families and Mr. McCain against the value-added tax. An unlucky 13, one retiring Republican and 12 Democrats, stood for soaking the American taxpayer with a devastating new tax. This was a landmark vote, strikingly reminiscent of the 1995 Senate vote that permanently iced the Kyoto Protocol on climate change.
What is Glut the Beast and how does the value-added tax fit in? Recall Ronald Reagan's reputed policy to "starve the beast." Facing strong resistance to spending cuts, a starve-the-beast strategy holds down tax levels to build political support for lower spending. As the deficit grows, so does concern about it. That concern then merges with the desire to restrain spending.
Glut the Beast applies the same logic in reverse: First, raise spending as fast as possible. Here, Mr. Obama and his allies have been notably successful. As a share of our economy, federal spending is up almost a quarter since 2008. The recent passage of Obamacare promises to keep government spending rising rapidly for decades.
The next step, the "Who, me?" stage, is critical. The president must imply that the spending is nothing new really, that it is inevitable, vital, an act of God, anything but the consequence of his policies and strategy. Then, having established the apparent inviolability of spending, the only remaining option for addressing overwhelming deficit pressures is a massive tax hike. Voila, the value-added tax.
As pressures build for a value-added tax, proponents will offer many soothing palliatives, like suggesting the tax is OK because we're not really overtaxed compared with most other industrialized nations. In truth, Americans are heavily taxed, but less so than Europeans. As a consequence, the United States also generally enjoys a stronger economy over time and more freedom all the time. To argue that matters could be worse is hardly a ringing endorsement for a value-added tax.
Another argument is the current tax system harms economic growth and the value-added tax would do less harm. The federal income tax does seriously harm the economy, and real tax reform is needed. But this relative harm argument conveniently confuses tax replacement with adding a tax. Adding the value-added tax is not tax reform and would weaken the economy.
A related argument is that a value-added tax would be better than raising the income tax dramatically. True again, but also not an argument for a value-added tax. Washington's desperate search for revenues demonstrates that the current system cannot generate the revenues Mr. Obama needs for all the spending he wants. He needs the value-added tax to feed the beast. But adding a less bad tax to a really bad tax would not be an improvement.
Finally, and most laughably, is the claim that the value-added tax would strengthen the economy. This is an updated rendition of the goofy old Rubinomics of the Clinton era.
To be sure, Mr. Obama's budget deficits are unsustainable, which means in part they will do real damage to the economy. At some point, that damage will exceed even the damage from higher taxes. But just as one does not acquire virtue by becoming a better thief, one does not strengthen the economy by doing slightly less damage. The solution to fix the fiscal house and to boost the economy is as simple as it is odious to the Glut faction: reverse the Obama spending surge.
More so than Obamacare, enacting a value-added tax would be a crowning achievement for the "progressives" who seek to recast the nation into a full state of dependency on Washington. Nothing less is at stake.
Americans who have other ideas for the country's future need to challenge anyone running for office, anywhere in the country, to take a stand on the value-added tax just as Mr. McCain's colleagues did in the United States Senate. Every town council member, every mayor, governor, or congressional or senatorial hopeful should be pressed to declare whether he or she stands with American families or with Washington's beast. As they do, it will become apparent to all that the United States is not a value-added tax country.
• J.D. Foster is the Heritage Foundation's Norman B. Ture senior fellow in the economics of fiscal policy.
Posted by Lady Patriot at 10:25 PM