Dan Mitchell picks up on the increased talk of imposing a federal value-added tax, and the Cato Institute scholar gives a primer on the VAT and its implications. Some conservatives have talked about eliminating the income tax in favor of a VAT in the Fair Tax proposal, which Mitchell says might work — but that’s not the context of this proposal from Nancy Pelosi and other leading Democrats. They want a VAT on top of the existing income tax — and they want to increase the income tax and other taxes at the same time. Mitchell explains that they need the taxes in order to fuel their drive towards statism:
The VAT would be great news for the political insiders and belteway elite. A brand new source of revenue would mean more money for them to spend and a new set of loopholes to swap for campaign cash and lobbying fees. But as I explain in this new video from the Center for Freedom and Prosperity, the evidence from Europe unambiguously suggests that a VAT will dramatically increase the burden of government. That’s good for Washington, but bad for America.
It’s worth noting that even if the politicians are unsuccessful in their campaign to take over the health care system, there will be a VAT fight at some point in the next few years. This will be a Armageddon moment for proponents of limited government. Defeating a VAT is not a sufficient condition for controlling the size of government, but it surely is a necessarry condition.
Democrats seem almost pathologically compelled to restore their status as a tax-and-spend party. Nine months into the first era of complete Beltway control since 1994, all they have offered is massive spending plans backed by massive new taxes. A VAT would not just be another example of this, but would be the most visible of all their proposed taxes, hitting consumers on every retail transaction. And, as Mitchell notes, the VAT would have a multiplier effect, as it gets applied at every stage of the distribution chain.
Mitchell is absolutely correct about the necessity of blocking more revenue for statism. The VAT proposal gives Republicans their best chance at showing the grasping, greedy nature of the Democratic Party agenda in Congress. They need more money to buy more votes. We need less government to give them less power to corrupt the government. In that tug of war, most voters will choose the latter instinctively.