VAT Attack! Obama and middle-class tax hikes

February 11, 2010

As long-time readers know, I am convinced that the Obama administration is itching to slap the US economy with a value-added tax. Team Obama just needs to figure out how to do it politically. Listen to the POTUS in this BBW interview:

The whole point of it is to make sure that all ideas are on the table. So what I want to do is to be completely agnostic, in terms of solutions. What I can’t do is to set the thing up where a whole bunch of things are off the table. Some would say we can’t look at entitlements. There are going to be some that say we can’t look at taxes, and pretty soon, you just can’t solve the problem.

In short, how I read this is that Obama is willing to consider a broad-based tax hike on the middle class. Smells like a VAT. But I don’t see how the WH gets there absent a financial crisis that puts Washington into a panic, just as happened with TARP. Maybe if Congress rejects the proposals of the new deficit commission, a bad market reaction would be a catalyst to action.

Of course, Obama could suggest the Hall-Rabushka flat consumption tax, a favorite with conservatives. It is like a VAT with part of the tax paid directly by individuals. This makes the tax more transparent, which politicians don’t like. To them, transparency is a bug not a feature. But the concern on the right is that an invisible VAT would make it too easy to raise taxes and finance a vast expansion of government. But even with an H-B tax, conservatives have no interest in a tax that would raise the tax burden as a way of increasing revenue as a portion of GDP from around 18 percent.


We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see

Stop diverting your energy with taxes. The problem is spending. Restoring growth and cutting taxes with “incentives” avoids the problem. Cutting taxes and avoiding spending is one of 2 problems with conservatives and Republicans. The other is their view that military spending can never be cut. They fail to see their philosophy supports big government. Conservatives defend military spending by saying it creates jobs and is constitutional. So that balances out with liberals who insist government central planning is better than the free market and that spending ensures justice. The result is the mess we have. No thanks.

Posted by Liberty Lover | Report as abusive

Of course the middle class will face higher taxes, we have no lobbyists!

Posted by Unrepresented guy | Report as abusive

Taxes are going way up in this country, even for the beloved middle class. You know 9 of the top 30 job sectors ten years ago are shrinking to the point of extinction due to foreign competition and technology advances? The US economy is in tailspin. I work for and the angry chaos around America is getting worse each day. Companies are using this recession to do far more with less people. State governments like California and New Jersey are reeling in red. Whether your in Abu Dhabi, Germany or in New York City, get ready for a huge wealth transfer to other regions and classes

Posted by Voomie | Report as abusive

This will be the final nail in the coffin for the US!

Posted by Tired Old Man | Report as abusive

Come on Voomie — it’s not that bad. When times get tough
the tough get going. Look at the history of Europe around the 1850s — the people wanted more & the governments coundn’t afford it, the answer was colonialism! The trick is to grab places with iron ore, bauxite, and oil rather than tsetse flies and poor coffee.
Its good to be king!

Posted by Tom T | Report as abusive

I can not understand Americans thinking,opinion on Mr.Obama!s tax proposals, bail out measures for banks and to other financial institution for further falling or ending their business career and so on.
For any troubled economical scenes and low cash flow to government funds, jobless situations in organised sectors, health reform, for day today expenditure to government servants, and lastly running the government, they need finance and by constant manner by some taxations to high income and high wealth groups,collecting some big amounts by taxes to rich,some concessions to workers,army personnels and to get things in order of the day of any government.
What Mr,Obama does for American economy to be back from downtrend and for America only.
We can question and criticize governments policies by now and then, we have to provide new solid proof system for new measures to tackle sudden, unexpected huge deficit in planning and its execution stages.
I wish that, many leading world,American economists will give some quick as well as protective economic mechanism to Mr.Obama!s cabinet heads.

Posted by krishnamurthi ramachandran | Report as abusive

VAT is the worst idea that has come out of the conservative think tanks like Cato Inst. and others. It is regressive, will impoverish the middle class of America even more and will be a nightmare to administer.

However, the US must increase its tax revenues. How? Pass an intangibles tax (tax on net worth) on all individuals, corporations, trusts, PICs, etc. with a net worth over $10 million. Just 1% intangibles tax on the super wealthy would more than balance the budget and not disturb one bit the life styles of over 99% of Americans.

Already states like NH and Fla have an intangibles tax instead of an income tax. The Federal Government should do the same thing.

Posted by Acetracy | Report as abusive