Those who advocate more government spending need to identify new revenue streams. Instead of cutting back on spending to tackle the looming debt crisis, unfunded entitlements and government bailouts, the White House and other Democratic leaders are looking for ways to capture more revenue by adding new layers of taxes. As suggested by former Federal Reserve Chairman Paul Volcker, the White House is entertaining the idea of the first-ever consumption tax in the United States.
To be fair, Volcker did not state that the White House is considering proposing the United States adopt a VAT — a regressive tax generally implemented along with cuts to the income tax for low- and middle-income persons. Rather, he described the VAT as “not as toxic” an idea as it had once been.
As demonstrated by Republicans themselves, in a budget proposal written by Rep. Paul Ryan (R-Wis.), the only way to solve the United States’ long-term deficit with spending cuts is to radically slash popular entitlement programs such as Medicare. (The idea of cutting foreign aid wouldn’t do a thing.) Realistically, the country needs to raise taxes, at some point, somehow. A VAT can be scaled to collect large sums without distorting the economy, hence its popularity in other OECD countries and among economists. Congressional Budget Office Director Doug Elmendorf has confirmed that his office is studying the tax and that several members of Congress have inquired about it. But Grassley’s opinion piece — punching at a tax that has not yet even been proposed by a deficit commission not yet even convened — demonstrates how tough the fight on deficit-reduction will be.