Nancy Pelosi and the Value-Added Tax

Former Sen. Fred Thompson at the 2008 RNC, on the Democrats and tax reform:
“They say they’re not going to take any water out of your side of the bucket,
just the other side of the bucket.”

Yesterday, we learned that Nancy Pelosi is open to looking at the Value-Added Tax (VAT) as part of a Democrat-led overhaul of the tax code. I was tempted to write about it with a few minutes of spare time which arose a little after noon, but I remembered that in the evening I had my Federal Income Taxation class, and thought it apropos enough to wait.

So, at about 7:00 p.m., as we moved from one section of our text into another and postured for a brief break in between, I asked my professor–a former IRS official–what I had been meaning to ask all day.

“Professor,” I said, after he acknowledged my raised hand from the fourth row back. “If you don’t mind, I have a question that’s not exactly related to the matter at hand.”

“Sure,” he said. “Go for it.”

“Could you explain briefly what exactly the Value-Added Tax is?”

Immediately after I asked the question, I noticed an African-American conservative classmate in front of me nod his head. Obviously, he had encountered during the day the same article in The Hill as had I. Now, I knew–roughly–the answer to my question, as it was touched upon in the piece about Pelosi and because I had learned a little during similar debates in the past, but knowing essentially what the answer would be, I wanted my mostly Obama-loving, liberal classmates to hear the explanation from someone with a little more credibility than myself.

The professor nodded, leaned up against the podium at the front of the room, and explained that the VAT in many ways has the same effect as a sales tax, only that it is concentrated on manufacturers and the manufacturing process. In two words, he described it as a “manufacturer killer,” and went on to give an example using the automotive industry.

“The Value-Added Tax is just that, a tax assessed as value is added to a certain product during the course of the manufacturing process,” he said. “If the product in question is a car battery, let’s say, then the car battery would have a tax on its market value added when it leaves the battery manufacturing plant, and then again when it reaches General Motors as the value of the battery is added to a vehicle, and so on.”

The increased cost as a result of the tax, he said, would ultimately be passed along to the consumer. In the case of his battery example, the car coming off of the assembly line would cost more because it wouldn’t only be the battery subject to the tax, but any other components coming in from various points in a distribution process as well.

To justify her willingness to put the VAT “on the table,” according to the Hill piece Pelosi maintained that it would “level the playing field between U.S. and foreign manufacturers,” the latter having the advantage of avoiding the pension and health care cost burdens shouldered by their American counterparts. Without mentioning Pelosi’s name, I asked my professor whether the idea that the VAT could be used to do just that would be a reality, or a myth.

“Oh, I’d say that’s a myth,” he said, adding that even if the VAT were somehow targeted for foreign manufacturers only, many of those manufacturers in Europe especially already have such a cost figured into their final pricing scheme.

What I didn’t ask about in class was the overall absurdity of Pelosi’s contention that whatever changes were made to the tax code–including a VAT–would not result in an increase in taxes on middle-class Americans. I already know the answer to it. Heck, Fred Thompson put it best when he said, wryly, that the Democrats would never, ever take the water out of your side of the bucket — just the other side.

And that’s what this is. The Value-Added Tax is a killer of manufacturers, and therefore a killer of jobs and a killer of consumer confidence. It might not be a direct income tax increase on the middle class, but it would most definitely result in middle-class American families feeling the additional tax burden in the price of everything they buy. So much for those empty promises made by the president.

Equally absurd is Pelosi’s idea that a VAT could help the country “address its fiscal liabilities.” The people of the United States ARE the United States, and if Congress destroys what little is left of our manufacturing and drives up costs of just about everything, tax revenue will suffer, jobs will be lost, and Americans will be at the mercy of foreign manufacturers with regard to everyday products used. The way to address our nation’s fiscal liabilities is to stop adding to them. Stop the wasteful spending. Go through each program with a fine-toothed comb in order to weed out waste and redundancy. Don’t dare add trillions in unfunded liabilities in the form of sweeping health care reform.

When the average American family sees a sharp rise in its fiscal liabilities, perhaps due to an increased mortgage payment or a whole new set of bills thanks to a newborn baby being added to the household, the only option for that family is to rid themselves of other fiscal liabilities until the situation is at least sustainable. As it stands now in America, we’re spending hundreds of billions of dollars each year simply to service the debt we owe.

My professor chuckled when I finally did get political and suggested that we jettison whatever fiscal liabilities we have before adding any more, and certainly before trying to fix the problem with a tax increase. And from somewhere in the room, I heard someone say: “Like the war.”

But that’s the answer Pelosi is searching for but desperately doesn’t want to employ. Just like a struggling American family must cut costs by changing mobile phone plans or cutting cable television or shopping at a discount supermarket, the American federal government should address its own fiscal liabilities in the same way.

Share

Comments

  1. ENOUGH WITH THE TAXES says:

    Dear :D

    Thank you for taking the time to contact my office to share your concerns about climate change legislation. Your input is important to me, and I appreciate the time you took to share your thoughts.

    As you know, I did not support the climate change legislation considered in the Senate in the previous Congress. Instead of being about climate security, and instead of being about something that really drives us toward using technologies that would cause our country to be energy secure, this bill in fact ended up being about money. This bill would have doled out trillions of dollars to various industries and organizations and forced hard-working Americans to pay more for gasoline, more for electricity, more for food, and more for everything they buy.

    I didn't think it was possible, but the Waxman-Markey climate bill appears to be even more problematic than the climate bill considered in the Senate last spring. I don't know of many special interests that don't receive a pay-off in this legislation, and if it comes to the Senate floor in this form, I'll vote against it.

    It is likely the Senate will return to climate change in some form later this fall, and I appreciate your concerns regarding a cap and trade or carbon tax bill. I assure you I will continue to remain an active participant in this debate, and the insight you've given here will certainly help my staff and me prepare for future discussions on this issue.

    Thank you again for your letter. I hope you will continue to share your thoughts with me.

    Sincerely,

    Bob Corker
    United States Senator

  2. Anonymous says:

    Next they will put a VAT on your dead carcus. Tax you from your deathbed to the morgue, the morgue to the funeral home, the funeral home to the cemetary.

  3. Gail B says:

    If those on the Hill would spend as much time figuring out how to REDUCE everything they're working on to INCREASE–like the size of government, the taxes they promised to be against, and the national debt, America would be a lot better off!

    It takes a lot to make me ANGRY (big-time anger). I am still irate over the money for San Fran's RATS in the stimulus package that hasn't worked and won't work!

    Jeff, I wish you could run for president in 2012, but we'll just have to wait until 2016, when you "become of age." I had to go through comments for October 2008 to find that October 19 is your birthday. (I'd gripe that you could have saved me the trouble except that I enjoyed reading about what we were dealing with then.) I hope that this year's celebration will be less stressful than it was last year.

    You have a way of wrapping your words of wrath with a warm and fuzzy blanket, without irking the dog mess out of people. On the other hand, my mother raised me to (in her exact words) "state your business." Soft? No, none of that. Direct? Absolutely. Bottom line: No doubt about where I'm coming from! YOU: No doubt about where you're coming from either, but you don't leave people wondering which side of the bed you got up from!

    That is a very admirable trait of yours and is one I really envy! I also appreciate your intelligence and your gut feeling. We here at AR appreciate you very much.

    Now. Don't let that go to your head!

  4. Uncle Rick says:

    Tax issues always put a burr under my saddle. Few people — lawyers not excepted (no offense, Jeff) — have any meaningful understanding of the principles of taxation in a free republic.

    First, it is an ancient and well-established principle in common law that rights may not be taxed. Only privileges may be taxed by the one who has the authority to grant, deny, revoke or modify the privilege. This is the least-known and most violated of tax principles.

    The second reality is the fiction of a tax on businesses (though they can be hurt or destroyed by a moronic tax system). The only source of revenue for any government is working people, because they are the only ones who create value. Businesses simply pass on taxes to their customers, their employees or their owners.

    But, I suppose it's too much to expect Democrats to understand any of this.

  5. Andrew Ian Dodge says:

    A VAT tax instead of income tax might be useful. But that would require Pelosi to get rid of a tax which I find highly unlikely.

  6. ANOTHER CASE OF INEXPERIENCE says:

    PARIS – Somali pirates in two skiffs fired on a French navy vessel early Wednesday after apparently mistaking it for a commercial boat, the French military said. The French ship gave chase and captured five suspected pirates.

    No one was wounded by the volleys from the Kalashnikov rifles directed at La Somme, a 3,800-ton refueling ship, French military spokesman Rear Adm. Christophe Prazuck said.

    La Somme "was probably taken for a commercial ship by the two small skiffs" about 250 nautical miles (290 statute miles) off Somalia's coast, Prazuck said.

    "They understood their mistake too late," he said.

  7. Anonymous says:

    Jeff, I don't have your email address, so I'm going to put this on a comment under the wrong section (this message is under health care bill).

    I want your opinion on the possibility of being able to sue regarding the health care bill (at least the portion that states you will be fined if you don't purchase health insurance) under the First Amendment establishment clause. Two clauses in the First Amendment guarantee freedom of religion. As you know as a fellow up and coming attorney, the establishment clause prohibits the government from passing legislation to establish an official religion or preferring one religion over another. It enforces the "separation of church and state."

    Under this section, wouldn't it be a violation of that clause to penalize a Christian Scientist for refusing to purchase health insurance because he doesn't agree in scientific medicine? Then he would be essentially pursecuted regarding his beliefs because he would never use the health insurance.

    In a Christian Scientist website lately regarding Advanced Care Directives I found: Do I need an AHCD if I'm a Christian Scientist?
    Yes. Even though you do not intend to seek medical care, you might find yourself in a medical situation. It is important for Christian Scientists to have such a document in effect prior to the time of need. Health care providers such as paramedics, ambulance attendants, and hospital staff are more likely to respect your desire to refuse medical care if an AHCD can be produced stating your directives for health care and designating a representative to act on your behalf. To be well prepared you need a written statement of your wishes. It is also important that your AHCD is state-specific, is executed and applies to the state you are living in: each state has variations in law that your AHCD should cover in order to have maximum validity when presented to the local authorities or medical facilities.

    Basically, I believe this is infringing on religious rights of certain individuals and therefore if this passes, I wish some Christian Scientists to take this issue to court and reinforce the constitution.

    What do you think Jeff?

    mmm

  8. Gail B says:

    Anonymous at 3:41 p.m.–

    I like the way you think! (No offense, Jeff!)

  9. Anonymous says:

    Congratulations! You have effectively undermined an initiative of a laughable politician who no one with a sense of reality pays any mind.

    I agree that the VAT would not be good for America, but that does not in any way make America's conservatives right on taxation and government spending.

    I remind you that it was the Republican party, under the leadership of President Bush, that created the largest deficit in US history. This is not speculation (as is the conservative sound-bite that President Obama will "quadruple" the deficit); Bush and his Republican Congress actually created an embarrassing deficit that has crippled the world and may potentially cause the US dollar to be replaced with the Chinese yuan as the standard currency for international transactions. Remind me to send Bush a Thank You letter.

    Now, I do not think all debt is bad, and I am convinced that sometimes government debt is necessary, as advocated by many economists, including John Maynard Keynes. What makes Bush's deficit so shameful is that not a single significant domestic problem was addressed. What Bush did do, for an amount that would cover healthcare for every American for quite some time, was get us into the wrong war for the wrong reasons. If there is a such thing as a “right” war, we certainly missed it by a “Q.” Now a country more dangerous, that actually is creating a weapon of mass destruction, will get away with it because our military is exhausted and Americans are fed up. I’ll include all of this in my Thank You letter to George.

    President Bush also ensured that many of America’s richest families will remain the richest off of our US military operations. Many in the top 1% have secured their position for generations to come. And to top it off, I never even received a Thank You card from Blackwater or Halliburton. I feel shortchanged.

    So, since the current policies of the Republican party have so impressively failed, we must entertain options that are contrary to American conservatism. What our liberal tax professor also indicated in our Federal Income Tax class is that a key solution to addressing the deficit in America is holding corporations more accountable and eliminating the countless loopholes available to corporations to escape tax liability. He specified that taxes from corporations declined from 10% of tax revenue a decade ago to less than 3% today. I truly believe that this comment was the most coherent thought our professor articulated the entire semester. Please do not tell him I said that.

    After the professor made this statement, a conservative in the front of the class stated “Well, if we increase taxes on corporations and on the rich, there will be less jobs.” I am not sure if it was coincidence, but I became severely nauseous after that comment. By the look on the professor’s face, he may have become nauseous too. Perhaps instead of firing lower salaried employees, the corporations will find that a better way to minimize expenses is to not pay billions of shareholders’ dollars to the top executives. Maybe a CEO, whose worth is immensely exaggerated in this country, should get only five million annually instead of sixty million. Corporations are too often stealing money from shareholders anyways, so I say give it back to the people through taxation, to help the shareholders pay for healthcare and education.

    We have reached a point in society where the well being of a middle class American is directly related to the success and stability of a giant artificial entity that is more selfish, greedy, and heartless that any human can ever be. Why have we accepted such a system and why are we so concerned with preserving it? What happened to the entrepreneurial America that made me exceptionally proud to be an American? We’re so concerned with squabbling for the scraps from corporate tables that we've missed our God given right to something better.

  10. Linda says:

    My opinion: Oh what an opportunity this country missed by passing on Fred Thompson. I listen to his radio show almost every night on the internet and the common sense, straightforwardness, and conservative policies he propounds is just what this country needed and continues to need.

  11. JEFF SCHREIBER says:

    Anonymous @ 4:50 –

    I'm super short on time, but I wanted to thank you for an intelligent and well-reasoned reply. Unless I mis-read it, not once in there did you call me a racist!

    Now, I will make a few notes…

    First, I think today the CBO also reported that the federal deficit has set an all-time record. Under Obama. As I've admitted before, Bush and the Republicans may have murdered the economy with reckless spending (though remember that the Democrats won in 2006), the Democrats and Barack Obama have gone on a killing spree.

    Second, please tell me where, in the history of the world, Keynesian economics has worked. It didn't work here in the 30s, it didn't work in Japan in the 90s, and it won't work here now.

    See here (http://www.americasright.com/2009/04/lessons-from-1934.html) for my take on Keynes and such.

    That's all I can say for now–I've got so much work to do between my job and school that I can barely find time to breathe–but I'll try to get back to you later.

    Thanks again for a civil reply.

    Jeff

  12. William A. Rose says:

    Has anyone heard of the Fairtax Act?

    Look it up. READ it. It is the only fair tax option (in my opinion) that would save our once great country and way of life.

    Folks, really, really read it. Think about it. Discuss it. You will see that it is worth your support.

    I didn't see it mentioned in he comments thusfar. Please research it folks.

  13. Linda says:

    "Second, please tell me where, in the history of the world, Keynesian economics has worked. It didn't work here in the 30s, it didn't work in Japan in the 90s, and it won't work here now."

    Further, he/she/it needs to read Dick Morris' "Catastrophe" wherein he explains Keynesian economics and why it doesn't work.

    Take care Jeff. Don't wear yourself out. You're needed.

  14. Anonymous says:

    ever since she changed her name to PE-LIES-i anything she says remains suspect… :-)

  15. Anonymous says:

    about finding that section in Constitution where H.care mandated – - spoton. they are proceeding as if this is a neccesity of the greatest importance. we say we dont want it but they go full speed ahead?

    reform yes, but just for the purpose of fulfilling a promise obama mouthed off without a plan?

    shame on us if we screw up ourselves for years to come jut to please the ego of one man who couldnt care less.

    and it has irrated me from the beginning of this that all of this and no specifics on how to conrol one of our major problems namely TORT reform.

    THIS frustrates me so much that i am puzzled that supporters of this bill as it is are so at ease with it.

    another myth: this will not affect the deficit… WHAT?????

  16. Rix says:

    I am for bringing in the VAT – yeah, a VAT OF EXCREMENT to drown our beloved Speaker in. Maybe, just maybe, that will put a lid on her political activity.

  17. Still a Patriot says:

    William A. Rose -

    As a Huckabee supporter, I am familiar with and support the Fair Tax. I also believe it could save our economy. I encourage everyone to check it out.

    Susan

  18. Jan says:

    Anonymous @ 4:50 – While you are sending a "thank you" letter to George please send one to each and every member who voted to get into that "wrong" war. Republicans and Democrats alike are destroying this nation and it's security (financial and physical). They are greedy and care more about themselves then they do about the good of the country. They have taken their eye off the ball. To place the blame on one person just doesn't cut it anymore with me. Now that it is not popular so many of those who supported many of his failed initiatives are trying to prentend they didn't. That's just not so. They are all responsible.

  19. Anonymous says:

    The reason Keynesian economics doesn't work is that Keynes was a fabian socialist (read marxist)!

    Communism and economics are mutually exclusive words.

    Nuff said.

    Lisa in TX

Speak Your Mind

*