Senate votes against a value-added tax

Senators voted overwhelming Thursday to say they don’t want to create a new value-added tax, or VAT, in a vote designed to take the wind out of an idea that had been circulating among policymakers for the last several weeks.

The 85-13 vote against a VAT was nonbinding, but it did put one chamber of Congress on record in opposition to adding the new tax just weeks before the first meeting of President Obama’s debt commission, which is supposed to report back this year on how to bring the country’s finances under control.

Six senators are part of that commission, and all six voted against a VAT, a type of consumption tax that’s been adopted in Europe. If all six senators remain consistent in their opposition, it means a VAT could not be part of the commission’s plans, because the president’s rules say that any recommendations need support of 14 of the 18 members on the panel.

“I do not myself favor a value-added tax,” said Sen. Max Baucus, Montana Democrat, chairman of the Senate Finance Committee and one of the debt commissioners.

Sen. John McCain, the Arizona Republican called for the vote, saying the danger in a VAT is that it is a hidden tax, built into the price of most products, and so consumers aren’t as aware the government has taken a share of the money.

“The middle class is where the real money is, and the only way to get more of it with the least political pain is through a broad-based consumption tax such as VAT,” said Mr. McCain, who insisted on having a recorded vote to make all senators show where they stood.

The VAT vote came as an amendment to the bill to resume unemployment benefits for those who have been jobless the longest. The unemployment bill passed 59-38, overcoming most Republicans’ objections that the measure wasn’t paid for and much of the $18 billion in spending was being borrowed against future taxpayers.

Later Thursday the House voted 289-112 to pass the bill and send it to Mr. Obama to sign into law.

Democrats defeated several efforts by Sen. Tom Coburn, Oklahoma Republican, to cut other areas of spending and raise some revenue to pay for the unemployment aid. But one of Mr. Coburn’s trade-off amendments came close to succeeding, failing 50-48.

Under the bill, jobless benefits are extended through early June, which is a stop-gap measure while the House and Senate negotiate a full-year extension.

The bill also included money to prevent cuts in payments to doctors who treat Medicare patients.

The VAT vote was spurred by recent comments by Paul Volcker, a former chairman of the Federal Reserve who is now a top economic adviser to Mr. Obama. He said imposing a VAT “was not as toxic an idea” as it once was. Mr. Volcker was answering a question from the audience at an event in New York.

The VAT is an attractive option for those who want to broaden the tax base, and even some conservatives have expressed support for it, though usually only if it would be in exchange for getting rid of the income tax.

Congressional Budget Office Director Douglas Elmendorf last week told reporters his office has talked with some congressional offices about studying a VAT, though nobody has submitted an official request to evaluate a proposal for such a tax.

Of the 13 senators who voted to support the possibility of a VAT, 12 were Democrats and one, Sen George V. Voinovich of Ohio, was a Republican.