Congress must consider a VAT to pay the bills

With trillion dollar deficits well into the future staring Congress in the face, talk about imposing a value-added tax on goods and services is more often heard in capitol corridors.
All of the advanced countries in the world use a VAT to produce most of their income — and so do about 100 emerging nations. It gets its name from the way it works. The tax is im-posed as raw materials are processed into finished goods and then sold to a consumer. Wheat would be taxed when sold by a farmer to an elevator; then the grain would be taxed when sold to be pro-cessed into flour. The baker would pay a VAT when the flour was purchased and, finally, the housewife would pay the tax at the checkout register.
At each point along the way, the tax already paid would be deducted, so that, in the end, the government would receive only the amount of the final sales price called for by the law. A 10 percent VAT would net the government 10 percent of the final sales price. The advantage of a VAT over a simple sales tax is that it generates income fast-er and is more certain to collect the entire tax due because if the tax is evaded at any point along the line for whatever reason, it is paid at the next stop.
VATs have been so broadly adopted because they bring in very large amounts of money even when the rate itself is low because the entire population pays. Just as a low retail sales tax is the biggest moneymaker for America’s states because the base is so broad, nationwide VATs do the heavy lifting in Europe and elsewhere.
The downside to the VAT is that it, like any other consumption tax, hits the poor hardest. There are two ways to mitigate that effect. Some countries exempt food and such things as children’s clothing. Others find ways to supplement incomes for those in the lower-income brackets, such as subsidized housing, income bonuses for the number of children in a family, universal health care and other social programs designed to put a floor under incomes.

IT WOULD BE difficult to imagine a more unpopular tax in today’s political atmosphere. President Barack Obama promised he would raise taxes only on 5 percent of the people. A VAT would hit 100 percent. A good many Republicans have pledged themselves against any tax increase, period.
Perhaps the only political prospect more un-pleasant to contemplate is the fiscal collapse that is all but inevitable if nothing is done to begin to pay the nation’s bills as they come due.
Democrats will have to get used to the idea of taxing the masses; Re-publicans must face up to the fact that Congress won’t cut spending enough to balance the budget and that the nation must collect in taxes what it spends to avoid bankruptcy.
The hard facts are that the budget can’t be balanced with taxes on the rich. There aren’t enough of them. Nor can balance be reached through cutting costs. The country is entering a time in its history when the number of retired will grow faster than the number of additional workers. Those new seniors must have their pensions and will push the cost of health care higher with each passing month as the ranks of Medicare patients grow.
As President Obama said so eloquently in Norway, the United States is the world’s only military super power and has an ongoing obligation to stay strong so that it can continue to play its stabilizing role.
There is, in other words, no way to bring our federal spending down to the level of today’s federal income without reneging on the promises we have made to our own citizens and to the world.
And that is why a Value Added Tax — a federal deficit-buster tax — is so very likely to become a reality in the not-so-distant future.

— Emerson Lynn, jr.