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Friday, October 2, 2009

Mr. President: Here's My Nickel's Worth of Free Advice

Over the last few days, the media is reporting on growing speculation that the president is considering or even ready to propose a value added tax. In this way, President Obama would share some ideological similarities with Mike Huckabee. Mike Huckabee is also in favor of a value added tax, though he calls it a consumption tax or the fair tax. There is however a huge difference between Mike Huckabe and President Obama. Mike Huckabee proposes that all we have is a value added or consumption tax. Meanwhile, President Obama wants a value added tax on top of all the other taxes.

The idea first gained media attention most recently when it was suggested by John Podesta of the Center for American Progress. that the value added tax was more plausible than ever earlier in the week. Podesta, according to D.C. insiders, is believed to have significant influence over the current White House and was the Chief of Staff to Bill Clinton. His think tank CAP then held a conference in which all the powerful liberal economic thinkers all got on board in support of the idea of the value added tax.

Supporters of the VAT say it is a great revenue generator and they also say it encourages savings. It maybe a great revenue generator but that's because it takes a lot of money out of the hands of the citizens. Taxes affect behavior. So a tax on consumption would reduce consumption which would increase savings. That said, we're in a recession and we need more consumer spending. Now, we're going to have a tax on spending. Does that sound smart now?

Politically, however, the idea is even worse. The president must understand that if he breaks his pledge not to tax anyone earning under $250,000 a year, his presidency is over. That's not a broken promise he recovers from. There is no equivocation or explanation that will help him if there is a broad based tax on those earning less than $250,000. Now, opponents like me were dubious that the president could engage in the sort of spending he has and keep that pledge. This is exactly such a tax.

The president has added a cigarette tax. He's added several credits for low income folks. He wants to add a penalty for not getting health insurance. He wants to cut some credits for charitable giving. He also wants to complicate the tax code regarding corporate taxes. If the VAT were all part of a tax overhaul that simplified the tax code, that would be something most would applaud, however it's clear that the president has no use for simplifying the tax code. Everything he's done has complicated the tax code. Now, he's thinking about adding a VAT on top of it. If the president were to officially support such an idea, that would be it. It would be the George HW Bush equivalent of a promise broken. So, my advice is to stop listening to the far left on this. This tax is a bad policy idea and a much worse political idea.

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