Paul Volcker, current White House adviser and former Chairman of the Federal Reserve under Presidents Carter and Reagan, had some sobering news for U.S. consumers. At a New York Historical Society event on Tuesday, Volcker said the United States will have to consider a “European-style value-added tax” to address the fiscal crisis facing the federal government.
Reuters reports:
“Volcker… said the value-added tax ‘was not as toxic an idea’ as it has been in the past and also said a carbon or other energy-related tax may become necessary.
Though he acknowledged that both were still unpopular ideas, he said getting entitlement costs and the U.S. budget deficit under control may require such moves. ‘If at the end of the day we need to raise taxes, we should raise taxes,’ he said.”
A value-added tax is an alternative to a national sales tax that has been implemented by European countries such as France to fund their massive social welfare spending. According to the French government the VAT accounts for 49.7% of its tax revenue. It differs from a sales tax in that businesses are taxed any time value is added to the product in a stage of production.
Right leaning Web sites such as the Drudge Report jumped on the comments and his words are certain to inspire fear in conservative circles and the Tea Party movement that the Obama administration has plans for massive new tax hikes to pay for health care and balance yawning budget gaps.
Conservative columnist Charles Krauthammer wrote on March 27:
Obama knows that the debt bomb is looming, that Moody’s is warning that the Treasury’s AAA rating is in jeopardy, that we are headed for a run on the dollar and/or hyperinflation if nothing is done.
Hence his deficit reduction commission. It will report (surprise!) after the November elections. What will it recommend? What can it recommend?
…
That’s where the value-added tax comes in. For the politician, it has the virtue of expediency: People are used to sales taxes, and this one produces a river of revenue. Every 1 percent of VAT would yield up to $1 trillion a decade (depending on what you exclude — if you exempt food, for example, the yield would be more like $900 billion).
It’s the ultimate cash cow. Obama will need it.
Volcker’s comments reflect the stark realities facing the U.S. treasury, although the frankness of his comments will rile the political waters as voters angry with spiraling debt attempt to seize on them as proof the Obama administration isn’t serious about controlling spending.