James Pethokoukis

Politics and policy from inside Washington

Obama’s not-so-secret plan to raise taxes

October 1, 2009

Does President Obama have a secret plan to raise taxes on middle-class Americans — and,well, pretty much everybody else — with a European-style, value-added tax? Actually, it’s not such a big secret. Connect the dots:

1) The joint statement from the just-concluded G20 Summit in Pittsburgh called for balanced global growth — which means Americans must spend less and save more and reduce its budget deficit.

2) That same weekend, John Podesta, co-chairman of Obama’s presidential transition team and an outside White House adviser, tells a Bloomberg reporter that a value-added tax is “more plausible today” than ever, adding that “there’s going to have to be revenue in this budget.” A VAT is a kind of consumption tax.

3) Yesterday, the Center for American Progress, the liberal think tank with close White House ties, holds a conference on the rising national debt. While speaker after speaker — Paul Krugman, Roger Altman, CAP President Podesta (again), Laura Tyson — admits entitlement spending must be reduced, they also agree that taxes must be raised. Altman suggests $400 billion in new tax revenue is needed almost immediately to calm financial market fears, and a VAT would be a great way of doing it. That’s $400 billion a year, by the way, not over ten years.

4) Also, yesterday was the first meeting of President Obama’s tax reform panel led by former Federal Reserve Chairman Paul Volcker. In a two-part interview with Charlie Rose airing yesterday and today, Volcker says that if Washington can’t get spending under control, either a VAT or a carbon tax would be effective revenue raisers. “Those are two big ones,” he says.

5) As they used to say in the Soviet Union, “It’s no coincidence.” This is also the conclusion of one Washington insider with ties to the White House economic team: “Does this all add up to a trial balloon? Of course, it’s a trial balloon. And I expect the administration will propose major tax reform, including a VAT.”

Obama’s campaign promise to not raise taxes on households making less than $250,000 a year was always considered a joke here inside the Beltway. It’s the economic “consensus” — and this was true even before the financial meltdown and recession — that rising entitlement costs would eventually mean a higher tax burden for the American people.

Maybe it was a joke inside the campaign, too. Since being elected, Obama has raised cigarette taxes and has advocated raising healthcare taxes, energy and small business taxes, in addition to corporate taxes. What’s more, economic advisers like Larry Summers seem eager to get rid of all the Bush tax cuts, not just those on so-called wealthy Americans.

And it’s also no secret that economists love the idea of a VAT. It promotes savings over consumption, and its hidden nature may mean it has less behavioral impact on taxpayers. Conservative economist Bruce Bartlet puts it this way, “As a broad-based tax on consumption, it creates less economic distortion per dollar of revenue than any other tax–certainly much less than the income tax.” Indeed, a VAT is part of cash-strapped California’s newly proposed tax reform.

Liberals love the idea of a VAT because it’s, well, so European — also because it does raise tons of revenue to expand government. And that is what Obama wants: more revenue to pay for bigger government. Is a VAT better than the soak-the-rich approach favored by Democrats such as Nancy Pelosi and Charlie Rangel? Sure. Of course, the concern is that a VAT would be in addition to new soak-the-rich taxes.

See, even after the recession, there might be a 6 percentage point difference between what Uncle Sam spends as a percentage of GDP and what it takes in. Liberals like Krugman have no problem with making up that difference purely through higher taxes, even though that translates into raising the national tax burden by at least a third. And that, even though such a massive hike might well have a crushing effect on growth.

Obama wants a VAT? First, it should be part of broader tax reform, including getting rid of capital gains and corporate taxes. Second, it should accompany an Economic Bill of Rights much like Ronald Reagan used to suggest. Its elements: a) a balanced budget amendment, b) a line-item veto, c) a spending limit such as inflation plus population growth, d) and a two-thirds vote in the House and Senate for any tax increases. (Reagan also wanted a prohibition on wage and price controls. That would likely kill ObamaCare.)

And come to think of it, let’s cut spending and streamline government before cash-strapped, wealth-reduced taxpayers are forced to pony up a penny more, OK?

Comments

Hmm, I’m mighty curious how this will play in Peoria.

Posted by Jana | Report as abusive
 

Some Euros are looking to cut taxes as a means to stimulating growth. Our idiots are looking at increasing them as a means to grow gov’t. Makes perfect sense to me!

Posted by Night Ranger | Report as abusive
 

I doubt that anyone of ordinary intelligence and common sense believed Obama’s campaign-season tax “pledge.” It contradicted his unconcealed bigger-government agenda too starkly. All the same, he made such a statement, not once but several times — and his liberal base pointed to it repeatedly when his opponents predicted massive tax increases under an Obama Administration.So the question becomes: When Obama really does overtly raise taxes, will his campaign-season backers treat him the way George H. W. Bush’s allegiants treated him for breaking the same promise? If not, let’s hope the American people draw the moral and treat Obama and the Democrats the way we treated Bush the First in 1992.

 

This will doom the Left/Dems.With the mood of the people todaySurely the people will toss them out first chance theyget

Posted by Mark Clayton | Report as abusive
 

Consumer spending accounts for 70% of our economy, add a VAT and we might as well put a bullet in the head of the economy. Our politicians are trying damn hard to take us back to the 30′s.

Posted by wilky | Report as abusive
 

Anybody remember the luxury tax? It almost killed the entire domestic boating industry, and some others. The VAT will do that. Again.

Posted by Wide Awake | Report as abusive
 

“Volcker says that if Washington can’t get spending under control, either a VAT or a carbon tax would be effective revenue raisers.”Making the hard choices, the politicos call it — either they spend less of our money on their friends and ideologies, or they tax us more. Hmm… wonder what they will choose.

Posted by Charlie | Report as abusive
 

Ummm… and a VAT tax would be constitutional … how, exactly?

Posted by Ron Greene | Report as abusive
 

Summed up in 2 sentences:Volker:”You can’t continue like this. You either get spending under control, or raise huge taxes and cripple the economy”Obama: “sounds like it’s time to raise taxes!”

Posted by plutosdad | Report as abusive
 

A VAT may indeed be inevitable, given the detachment most Americans have from the day to day shenanigans of congress, but it will cost the Dems their majority. This may not cause the left too much heartburn because, if history is a guide, the Republicans will use the issue to beat up the Dems but when they get power they will only tinker around the edges rather than give up such a “great” source of revenue with which they can reward their friends. When the Dems regain power they will slowly raise the rates and by then we will all be conditioned to the “fact” that that’s just “the way it is”.The American people have shown no great propensity for punishing the political class for spending and as the average person becomes more scared of the deficit we will become more accepting of the tax increases.

Posted by Steve W from Ford | Report as abusive
 

We HAVE to cut the deficit. Period.But not until we pass another $1T middle class entitlement.Contradiction? What contradiction?

Posted by John Boy | Report as abusive
 

You all don’t understand—a VAT forced onto us would be in ADDITION to the IRS/state/local tax obligations we have already. Also, there will be some form of “carbon tax/Cap and Trade” passed and signed into law by the end of this year. If this all comes to pass: first, time for massive enforcement of the 10th Amendment; second, all Democrats (and any “Republican” who voted for these) are voted out of office. God help us.

Posted by MEF | Report as abusive
 

This if scary .It could be a subject of a novel on how or Muslim enemies put a mole in our country who became President and created policies ,outrageous spending and undermining the moral fiber of this country to destroy it.

 

I work for the government. I do nothing but sit and pick my nose. We are looking to hire more people to sit and pick their noses.Don’t believe me? Send me your address and I’ll send you a booger.

Posted by Jason Woodall | Report as abusive
 

Changing of the country started a long time ago. Power corrupts and they just can’t have enough.

 
 

obama is a trojan horse!

Posted by steven | Report as abusive
 

It is no surprise, the government wants us Americans to save more and consume less while the government does the opposite. If we the people spend less on ourselves, there will be more money for the government to collect in taxes which in turn allows the government to get bigger. As they raise taxes, people have less money in their pocket for their needs. As that happens, the government can offer to take care of the people, as in health care,etc. So then, the government can get even bigger, and justify even higher taxes. Soon, Americans will be working just to support the huge government which can then take control of every aspect of our lives. Soon, Americans will be responsible for nothing, government will take care of our health, pay for our housing, raise our children, make all of our choices for us. Sounds great, however, there will be no reason for some Americans to even pretend to try to make their own living. The government will then have more people to take care of while the tax pool will be shrinking as less people have earnings that can be taxed and given away by the government. We all know how this will end. Eventually the government ponzi scheme will cave.

Posted by Kevin | Report as abusive
 

HEY PEOPLE- IF THE CURRENT ADMIN. RAISES TAXES- CALL IT WHATEVER THEY WANT, THERE WON’T BE A MIDDLE-CLASS LEFT ALIVE TO PAY IT AFTER STARVING TO DEATH FROM HUNGER AND/OR DYING FROM LIVING OUTSIDE IN THE ELEMENTS WITHOUT ADEQUATE SHELTER – BE IT GLOBAL WARMING OR THIS YEARS COLDEST WINTER EVER.WORST CASE SENERIO.

Posted by MARY | Report as abusive
 

Would a VAT cut the deficit? Of course not.Congress would spend the new revenue in a flash, and they’d probably overshoot. We’d be lucky if the deficit didn’t grow.

Posted by gs | Report as abusive
 

Let working people keep the money they earn. Only then will we have sustained economic growth.

Posted by Mike | Report as abusive
 

I would prefer a flat out national sales tax as opposed to a VAT. In short, a VAT is more complicated than a staright sales tax and our congresscritters would only make it far more complicated keeping their masters happy.And as was pointed out, the Congress would not be scrapping the income tax, they woauld just be adding new taxes.Lastly, the constitutional does not allow Congress to impose either a VAT or a sales tax. It took an amendment to allow an income tax. No matter how much we might like to see tax reform – and no matter how much more sense even replacing the income tax with a consumption tax might make – we need to start holding Congress and the President to the letter of the Constitution they all swore to God to uphold and defend.

Posted by Bemused | Report as abusive
 

all of the obama criminals and the house and the senate will all be gone soon

Posted by d | Report as abusive
 

Not much said about cutting spending. Our government spending makes the Europeans look positively conservative. The huge bill is coming due and people are surprised. Brilliant! The road we are headed down is not looking pretty folks. Wake up.

Posted by propermike | Report as abusive
 

Podesta is busy man. He is deep into ACORN and defending them. He is working hard for Soros and Obama. So much energy for a socialist agenda.Center for American Progress is not a think tank. They are not open minded much less into thinking. They are unwavering in their commitment to an extreme left agenda.

Posted by Henry chance | Report as abusive
 

Good for you for telling it like it is.I don’t care what anyone says, there’s tremendous waste in the Government. They treat it like other people’s money. Probably a natural tendency if it’s not your own, but that’s why fiscal restraint should be the first test for any politician.

Posted by chad3337 | Report as abusive
 

Glad you voted for Obama? Having some regrets? What are we going to do for the next 3 1/2 years with that insane liberal in the WH

Posted by Hobart | Report as abusive
 

You LIED!

Posted by JAC | Report as abusive
 

The Dems just don’t get it.They will just expand government to fit the anticipated increased revenue. But economic turnover (as opposed to GDP) will reduce – leading to less revenues from existing sources.Result – there will still be a deficit and a deepening economic crisis.

Posted by Jimbob | Report as abusive
 

I’m not real sure this would suprise anyone. I have Always been under the impression the Obama and his cohorts have always believed that the money we have is theirs anyway, they jst let us play with it for a little bit.

Posted by John R | Report as abusive
 

Obama is probably a sociopath; delusional, narcissistic, arrogant, consumed with self. He will in all likelihood do more damage to America then any president in history. And he’ll pry my money from my cold, dead, fingers……

Posted by sub | Report as abusive
 

I don’t believe that Whoopi is stupid-stupid – she’s a walking lobotomy!!!! – but she’s not stupid-stupid.I don’t believe that The View is mindless-mindless – it’s witless, vacuous, pig-ignorant – but The View isn’t mindless, mindless.I don’t believe that Follywood is a moral cesspool-moral cesspool – it’s a Black Hole of Arrogant Perverse Genetic Cancerous Dissolution – but it’s not a moral cesspool-moral cesspool.I don’t believe that Barry Insane Obozo is a socialist-socialist – he’s a rotobot Soros Fascist Dangerous Dissembling Class-Warfare Victim hood Chicago Thug Above His Pay Grade Misplaced Sentimental Arrogant Income Redistribution I Heart Chavez anti-American Constitutional Idiot Shafter – but he’s not a socialist -socialist.I don’t think the American people are angry-angry – they are Furious Disgusted Mad as Hell Not Going To Take It Anymore Scalding Tea Party Black-Belt Champions Fighting For Our Constitution and Taking Back Our Of, By, and For the AMERICAN PEOPLE government from the Democrat Reichstag ObozoCare Union Controlled Countrywide Scumbag Sell-Out Pillage the American Tax Payer and Laugh In Their Faces While Doing It Leftist We Wipe Our Feet on The Constitution and Joke about Our Oath to It Congress – but they’re not angry-angry.

Posted by ame | Report as abusive
 

-Anybody remember the luxury tax? It almost killed the entire domestic boating industry, and some others. The VAT will do that. Again.-Florio did that in NJ. Killed the boat-building industry here. Highly skilled, well-paid craftsmen (artists, really) out of work or moved away. Success! Really showed those wealthy people!

Posted by Francis | Report as abusive
 

Someone help me understand how eliminating corporate taxes will help us cash-strapped, wealth-reduced taxpayers

Posted by Mike | Report as abusive
 

“We hold these truths to be self evident, that all men are created equal.” So goes some of the ancient thinking of the former republic, the USA. Now, under the new USSA, (an extra S for socialist), half the populace pays taxes and half doesn’t. The hopey changey organizer from Chicago wants to increase this assault on equality. As Orwell said in Animal Farm, “some are more equal than others” Yes we can.

Posted by Randall Nelson | Report as abusive
 

Think about what is being proposed here. They want to limit consumption and increase savings. That directly translates to less demand and fewer jobs. Of course the government coffers will be flush with cash, but that does not mean that it lower the deficit, since they can just as quickly spend it on entitlements. VAT does not ensure any level of fiscal responsibility.

Posted by Don | Report as abusive
 

A tax increase would kill Obama’s re-election chances. He campaigned on not raising taxes for the middle class. His base is not looking out for him.

Posted by WM | Report as abusive
 

Jimmy P,I don’t consider myself a liberal but why do people of your ilk say stupid ish like “Liberals love the VAT because it is so European…” How the hell do you know liberals like everything european It’s so childish!Based on your logic I think you like everything about the GOP & tea parties because everyone is so white. So why don’t you and all the supply siders(Larry Kudlow, Don Luskin, Rick Santelli) put back on you white robes and move to South Carolina or Georgia and scream about states rights. You’d fit in honestly right in the belly of real America you prick! Long live the KLan right Jimmy P!

 

Another hidden tax is the new EPA surface water rules, that are mandate to muni’s. My little self storage business has 2.5 acres and $60,000 gross income. We just received notice of our final water bill increase for stormwater that has been phased in over 2 years is $76.00 per month, almost a grand a year. Oh, the actual water cost is %6.72.

Posted by Joel Johnson | Report as abusive
 

Then why does AP and Reuters jump on conservatives when they call Obama out for lying to the public. You just said it, you guys all know he is lying to our faces, but then you turn around and beat down on anyone who says it.

Posted by anon | Report as abusive
 

What is most remarkable by all these educated economists and political elites is they do not understand (or at least refuse to acknowledge) the most basic of all economic laws: taxes retard the activity being taxed. They also are unable to “connect the dots”.So a VAT that taxes consumption will necessarily slow consumer spending which will necessarily slow the production of goods and services which will necessarily reduce employment opportunites which means higher unemployment.It is so simple, one must wonder – do they really get it and are intentionally trying to ruin the economy, and by extension the country, and bring an end to the American Age?The answer is obvious. The next question is when will the majority of the country see it too?

Posted by truzak | Report as abusive
 

The answer to the question of whether of not Obama has a “secret” plan to introduce a VAT is: “I certainly hope so!”It’s obvious to anyone who’s read a newspaper over the last ten years that America needs to increase its savings rate over the long term. Shifting the tax code toward consumption is the most efficient way of doing so. Anyway, for the most part those parts of the rich world that have VATS in place have been seeing stronger growth and faster income gains than the US. Over-consuming America’s median household income was slightly negative over the course of the Bush years. Not really a very strong argument in favor of continuing with America’s status quo with regard to fiscal policies.

Posted by Jasper | Report as abusive
 

If we are going to go after a VAT then we might as well do it right and pass the Fair Tax proposal, in its entirety. A national consumption tax that replaces ALL federal taxes and abolishes the 16th ammendment. A VAT on top of the current system would be a disaster!

Posted by John V | Report as abusive
 

Hope and change. Yes sir. I hope I can keep the little change left in my pocket. But its not looking to good.

Posted by Yes we cab | Report as abusive
 

an insane loser that needs to be impeached.

Posted by mobozons | Report as abusive
 

Raising taxes significantly would only get us about one-third of the way there, unfortunately. We must cut Defense in half, restrict the Social Security annual cost of living adjustments to no more than the rate of GDP growth (as progressively as possible), and throw every good reform idea from the left and right at Medicare.Clearly the Bush tax cuts must be allowed to expire in 2011 as scheduled. But more tax hikes should wait for significant reform to the Big 3 programs.Key facts to understand: 1) We cannot outgrow the problem per the GAO; 2) tax cuts increase deficits, debt and interest payments; 3) raising taxes won’t get us there.

Posted by David Doney | Report as abusive
 

Demoncrats don’t ever cut taxes, they raise them. A VAT would be another tax on top of all the taxes we already pay. A VAT won’t cause people to save more money either. It will just tax away more money that people could have saved. The VAT is a tax at every step of the manufacturing process. It’s taxes on top of taxes. By the time the Demoncrats finish raising taxes no one will be buying anything except necessities.

Posted by Sheri | Report as abusive
 

See the CNN news story: 47% will pay no federal income tax!http://money.cnn.com/2009/09/30/pf/t axes/who_pays_taxes/index.htm?cnn=yesI am outraged! I had no idea the problem was this bad. These people are nothing but filthy beggars!!! And, now it’s time to start paying for their health-care. Give me a break. I’d rather be mugged, there’s more dignity in it.We need a new political party in this country, the two we’ve got are nothing but robbing everyone. The republicans are steeling from the middle class and giving to the rich and the democrats are buying votes with our money by allowing this bunch of freeloaders to get a free ride.

 

THAT’S WHY OBAMA KEEPS ON SPENDING. HE WANTS TO CREATE A FISCAL CRISIS TO SAY A VAT TAX IS IMPERATIVE TO SAVE OUR ECONOMY… THIS PRESIDENT IS NOT WHAT WE VOTED FOR!!

Posted by Ron | Report as abusive
 

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