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Value-added tax, or VAT, back as proposal to solve revenue ills
Question of the Day
Seven months after the Senate knocked down the idea of a value-added tax, the VAT is back on the table — one of a host of familiar proposals that has been recycled as a proposed answer to the nation’s financial problems.
Entitlement cuts, military spending cuts and new taxes such as the VAT are among the back-to-the-future options that members of President Obama’s deficit commission have proposed as the 18-member panel meets to try to hash out a final report to the White House and Congress.
Arrayed against them are the lawmakers, policy wonks and entrenched advocacy groups from across the political spectrum who have spent years blasting those options and who remain steadfastly opposed.
“The politics are hopeless, really,” said David Stockman, a budget director under President Reagan. “You have right-wing sheriff Grover Norquist, [president of Americans for Tax Reform] proclaiming no dice on revenue raising; then the commandant of the left, [House Speaker] Nancy Pelosi, insisted that entitlement reform is ‘totally unacceptable’; next Big Labor’s drill sergeant, Richard Trumka [AFL-CIO president], called these modest steps toward fiscal sanity an ‘insult to working people.’ “
Despite the intense opposition, the panel’s backers say, the time is riper than it’s been in years for a breakthrough.
“I think there is a growing realization that we are not going to be able to address the problem with popular cuts,” said Robert L. Bixby, executive director of the nonpartisan Concord Coalition. “There is no such thing.”
Mr. Obama, who formed the commission by executive order in February, delivered a similar message at a news conference Monday: “Those of us who have been charged to lead will have to confront some very difficult decisions, cutting spending we don’t need in order to invest in the things that we do.”
The VAT, which amounts to a federal sales tax, resurfaced this month after a bipartisan commission co-chaired by Alice M. Rivlin, a budget director under President Clinton, and former Sen. Pete V. Domenici called on lawmakers to adopt it and a broad package of spending cuts and tax increases aimed at paring down the trillion-dollar federal deficit and soaring national debt. Mrs. Rivlin, who is a member of the president’s deficit commission, will have a chance to make her case for the VAT to fellow panelists this week.
But Sen. Lindsey Graham, South Carolina Republican, and other lawmakers have repeated their opposition to such a tax, as economists have warned that it could bog down future deficit reduction talks.
The distaste for VAT is a prime example of how old political roadblocks are frustrating the renewed effort to rein in spending, which has become the dominant issue in Washington in recent months.
Nevertheless, Mr. Bixby said, “hyperventilating from interest groups” and lawmakers suggest that the deficit commission’s plan is “on target.”
“Politicians have been overpromising for years and now it is time to pay the piper,” Mr. Bixby said. “If a politician is going to say, ‘I promise not to touch Social Security or I promise not to raise taxes,’ they are in effect saying, ‘I promise not to solve this problem.’ “
With this as a backdrop, the co-chairmen of the president’s fiscal panel - Erskine Bowles, White House chief of staff to Mr. Clinton, and former Republican Sen. Alan Simpson - returned to Washington on Monday for one-on-one meetings with members of the commission, tasked with putting the country on a sustainable fiscal path by 2015 while reining in the trillion-dollar deficit and national debt, which Friday reached $13.794 trillion.
The co-chairmen will continue to meet with commission members Tuesday, and the panel is set to release its final recommendations Wednesday.
It is not clear whether they can gain the support of 14 of its 18 members in order to reach the consensus needed to pass all or some of the commission recommendations to Congress.
Even if the panel can’t reach consensus, Mr. Bixby said, it could provide incentive for lawmakers to scale back tax deductions to help reduce individual and corporate tax rates.
“You might be able to strike a deal on that because you are actually lowering rates, which appeals to Republicans, but you are also bringing in more revenues, which would appeal to Democrats,” he said.
The deficit conversation picked up speed this month after the co-chairmen of the president’s commission floated a draft plan that recommended sweeping cuts in federal farm subsidies, defense programs and foreign aid, as well as cuts to Medicare and raising the age to receive Social Security benefits from 65 to 69 by 2075.
The plan included a 15-cent federal gasoline tax for transportation projects and curbed the popular mortgage interest and charitable donation deductions to help simplify and offset the cost of reduce individual and corporate income tax rates.
Days later, the Bipartisan Policy Center, a think tank established by four former Senate majority leaders, released the Rivlin-Domenici report that called for a temporary Social Security payroll tax holiday and a 6.5 percent “deficit reduction sales tax.”
In April, the Senate passed a resolution on a 85-13 vote that said such a national sales tax would “cripple families on fixed income and only further push back America’s economic recovery.”
The vote came shortly after Paul A. Volcker, a former chairman of the Federal Reserve and top economic adviser to Mr. Obama, suggested earlier this year that imposing a VAT “was not as toxic an idea” as it once was.
© Copyright 2013 The Washington Times, LLC. Click here for reprint permission.
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