James Pethokoukis

Politics and policy from inside Washington

VAT Attack! Greenspan: Raise taxes with a value-added tax

October 2, 2009

At the Atlantic magazine symposium I am attending, former Federal Reserve chairman again said he thinks taxes are going up and that a value-added tax would be the “least worst” way of doing it.  This dovetails nicely with what I wrote yesterday:

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.”

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