Steve Pearlstein of the Washington Post has a column, via the Concord Monitor, of how to "fix" the fiscal crisis: ["Here's my roadmap toward fiscal sanity"].
I posted some reaction myself and realized, after typing it all, it would make a nice blog post ...
The problem with this is that there is no guarantee that the VAT won't stay at 6%. As Congress has been known to do, even when Republicans control it, taxes can be inched up or noodled around with ... loopholes and exemptions are created ... and the next thing you know, ordinary folks are paying the freight and those with lobbyists or tax shelters aren't.
In addition, most families of four making under $50K don't pay taxes federal income taxes now - or very little. The VAT would increase their taxes to 6% of whatever they spent money on that was under the VAT. This amounts to an increase in taxes for poor and lower-middle-class folks, even with the so-called "rebates," and a decrease in buying power for the sector of the economy that is the most in need of buying power. Of course, families of four making under $50K sometimes pay a lot in income taxes, especially if someone in the family is self-employed I know, 'cause that's our situation). In this case, the taxes are much higher since this person is paying both the corporate and personal taxes. Essentially, our family is penalized for making the sacrifice of having one parent work part-time to raise our children and not put them in day care (if we put them in day care, we'd get a tax break, amazing, isn't it?).
The VAT also doesn't address the increase in the cost of living it will bring on in the wake of its creation. This increase will filter throughout the economy. It will increase costs and inflation. Since 70% of our economy is based on retail spending, this could hurt the "recovery." The VAT also doesn't address the issue of what is a fair or what isn't. Should the VAT on yachts be equal to the VAT on Scotch tape or some other "necessity"? If you increase the VAT on yachts, like they did many years ago when they put a federal surcharge on yacht sales, the sales dropped and lots of boat workers were put out of work. The reshaping of the corporate income tax rate is also a sham. Most corporations don't pay anywhere near 35% now. Moving it down does nothing. They have all kinds of loopholes to keep from paying the taxes. In addition, even if they did pay them, corporations just pass those taxes off to consumers as the cost of doing business.
Ideally, it would be better to raise tariffs instead of a VAT.
Raising tariffs has two benefits: 1) It raises revenues that are badly needed; 2) It allows domestic manufacturers, who often if not always pay minimum wage or more, to compete with foreign manufacturers who are paying pennies an hour for labor. No. 2, in turn, will increase domestic investment and job creation, which also has benefits to our local and national economies.
Of course, we won't see a tariff increase because the free trade cultists have control of the national media, academia, think tanks, and government. They will control the argument and continue to promote foolish ideas like this one instead of having a real discussion about what the United States should be doing about its economy.
Another tax that should be considered instead of a VAT: A Wall Street transaction tax.
This tax, essentially a very, very tiny sales tax on transactions, would raise hundreds of billions of dollars, from global citizens and entities in economic sectors that can most afford to pay taxes - those people and entities that are doing nothing but flip money around.
Of course, we won't see a Wall Street transaction tax because that would be too easy to do and Washington is occupied territory.