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In Search Of Revenue, Feds May Look To Consumers

National sales tax a possibility?

May 28, 2009

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The U.S. Government has been on a spending spree these last few months. Between bank bailouts, economic stimulus and plans to provide universal health care, projected deficits are now in the trillions of dollars.

How to pay for all that? Maybe with a "value added," or national sales tax, paid by consumers on all purchases.

Most states currently have some sort of sales tax — usually around five percent — with the revenue going to fund state treasuries. An additional national sales tax could direct hundreds of billions of dollars into federal coffers.

Many European government have value added taxes but the idea has never been seriously considered in the U.S. However, it's been a long time since the U.S. government has been in this kind of financial bind and the idea is getting serious traction among policymakers. Senate Banking Committee Chairman Kent Conrad (D-ND) says a VAT is "on the table," along with higher taxes on upper income Americans.

The Washington Post quotes White House officials as saying a VAT is "unlikely to be in the mix," at least as far as paying for universal health care. But an increasing number of academics and tax experts are pushing it as the fastest way to raise large amounts of federal revenue in a short period of time.

However, there are many critics of VAT on both ends of the political spectrum. Conservatives point out that a VAT will make the cost of everything higher, producing a huge drag on the economy. And now, they say, would be the absolute worst time to create that drag.

Liberals agree, but for totally different reasons. They argue that a VAT is highly "regressive," meaning everyone — rich and poor alike — would pay it. The rich, they argue, would be in a better position to absorb the extra cost of everything in the economy. The poor, and those of modest means, are having a hard-enough time getting by as it is, they say.

But there are two powerful supporters of a VAT with close White House connections. Ezekiel Emanuel, brother of White House Chief of Staff Rahm Emanuel, is a VAT advocate and is currently advising White House Budget Director Peter Orszag on health care issues. Also, former Fed Chairman and chairman of a group advising President Obama on tax issues, has at least expressed interest in the idea.

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