U.S. value-added tax still a pretty toxic idea
White House Economic Economic Advisor Paul Volcker stirred up debate over the United States possibly adopting a European-style value added tax to help bring federal deficits under control, saying recently that it “was not as toxic an idea” as it has been in the past.
Well the idea is still pretty toxic in the U.S. Senate.
The Senate on Thursday voted 85-13 to adopt an anti-value-added tax resolution sponsored by Arizona Republican John McCain as part of its consideration of legislation that would restore lapsed jobless benefits.
The resolution has no force of law, but it gives a pretty clear sense that senators don’t like the idea of a value-added tax.
“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 resolution stated.
A value-added tax would be added at each stage of production and as such would not be directly seen by the consumer the same way a sales tax is added to the total at the register. But it would be felt by consumers through higher priced goods and services. Critics say it is a regressive tax that hits hit fixed-income and poor people particularly hard.
But some economists argue a consumption tax is needed to help bring down budget deficits and curb America’s insatiable appetite for imported goods. It also could help U.S. manufacturers compete in the global economy. Some argue U.S. exports are less competitive because the European Union does not apply the value-added tax to its exports but does apply it to imports from the United States.
The debate over the value-added tax is not likely to end any time soon. Tax cuts enacted into law under President George W. Bush expire at the end of the year and lawmakers are likely to take a hard look at the U.S. tax code as they search for ways to generate revenue to cut huge deficits and make good on President Barack Obama’s promise to preserve tax breaks for middle-income taxpayers.
Photo credit: REUTERS/Larry Downing (Volcker testifies before a U.S. House committee)