Why a VAT is no solution to our budget woes

Photo of Rep. Joe Pitts
Rep. Joe Pitts
  • See All Articles
  • Subscribe to RSS
  • Bio

      Rep. Joe Pitts

      Joe Pitts represents the 16th Congressional District of Pennsylvania, a diverse district stretching from the western Philadelphia suburbs further west into the Pennsylvania “Dutch” Country. Joe Pitts’ life and career have been wide-ranging as well: he has worked as a teacher, a small business owner, an Air Force officer, and a legislator. In addition to Pennsylvania, he has lived in Kentucky, the Philippines, and the various places the Air Force sent him.
      Joe brings this rich and varied background into his work as a legislator. The fact that he joined the Air Force because he couldn’t afford to raise his family on a teacher’s salary helps him understand the hardships many people are going through. His combat experience gives him an appreciation of the sacrifices of our men and women in uniform. His time as small business owner gives him a better understanding of how government policies can help or hurt job creation. His time living abroad gives him sensitivity and insight into how our nation is seen abroad and a strong desire to fight for human rights.

      Joe is an independent-minded conservative who knows that Republicans lost their moral authority during the last years of the Republican majority. He has a record of making up his own mind about legislation. He voted against one-third of his own party’s appropriations bills because they spent too much. He doesn’t do “earmarks.” He opposed President Bush’s signature legislation, the No Child Left Behind Act, because it spent too much and did too many things that were best left to states and school districts. Once, on the floor of the House, he stared down then-Speaker of the House Dennis Hastert, Majority Leader Dick Armey, and Republic Whip Tom DeLay and successfully defeated a major bankruptcy reform bill because he found it discriminatory.

      Joe is a family-oriented conservative who believes strong families are the key to America’s prosperity. While others debate whether more or less regulation, this or that government program, or higher or lower taxes will make America stronger, Joe knows that the family is the fundamental building block of society. No amount of government spending can make a child succeed unless that child has the values and desire to succeed that only a strong family can instill.

      Joe is the son of an army officer who returned to the Philippines after World War II as a missionary. Joe spent much of his youth in Philippines, where some of his childhood friends had spent their earliest years in Japanese detention camps. He attended Asbury College in Kentucky, where he met his wife Ginny. Joe received a Master’s Degree in Education from West Chester University in Pennsylvania.

      Joe and Ginny taught school in Kentucky until the birth of their first child. Not long after, Joe volunteered for the Air Force, serving from 1963 to 1969. He rose to the rank of Captain and flew 116 combat missions on B-52s during Vietnam. He was a navigator and electronic warfare officer. It was that experience that led him to found the Electronic Warfare Working Group in Congress, advocating for critical technological investments that are currently saving lives in Afghanistan and Iraq.

      After leaving the Air Force, Joe returned to teaching math and science at Great Valley High School in Chester County, Pennsylvania.

      At the urging of his friends, Joe unexpectedly ran for the Pennsylvania House of Representatives in 1972 and won. His candidacy was part of a reform movement within the Chester County Republican Party known as the “Independents.” His victory sent a powerful message that from then on democracy, not machine politics, was going to rule in Chester County.

      Joe served for 24 years in Harrisburg, eventually chairing the House Appropriations Committee—a position he attained specifically because of his reputation for ethics and fair dealing. In that position, he worked with governors and colleagues in both parties to balance eight state budgets in a row, even during the recession of 1990-1991—without a federal bailout.

      In 1996 Joe was elected to Congress after winning a five-way primary election and a well-funded Democrat in the general election. Before his appointment to the important Energy and Commerce Committee, Joe served on the House Budget Committee, the International Relations Committee (now known as the Foreign Affairs Committee), the Small Business Committee, the House Armed Services Committee, and the Transportation and Infrastructure Committee.

      As a member of the Budget Committee, he co-wrote the only four balanced budgets enacted into law since the Lyndon Johnson Administration. Each of those budgets, negotiated with President Clinton, actually paid off some of the government’s debt.

      Joe is now a senior member of the House Energy and Commerce Committee, one of the most powerful committees in Congress. He serves on the Health Subcommittee, the Energy and Environment Subcommittee, and the Commerce Trade and Consumer Protection Subcommittee.

      Joe is an advocate for fiscal responsibility, refusing to request earmarks and voting against Democratic and Republican legislation if he feels it is irresponsibly expensive.

      Joe is an advocate for truly bipartisan health reform, working with New York Democrat Nydia Velazquez, chairwoman of the Small Business Committee, to introduce the Small Business CHOICE Act, which would make it easier for small businesses to offer health insurance for their employees.

      Joe is an advocate for conservation, the environment, and clean energy. He convinced Congress to protect the White Clay Creek and the historically important open space surrounding the Brandywine Battlefield in Chester County. He introduced the SAFE Nuclear Act to help transition away from fossil fuels. He co-chairs the Conservation Caucus in the House.

      Two other important caucuses he chairs are the Values Action Team and the Electronic Warfare Working Group. The Values Action Team advocates for pro-family legislation in the House, while the Electronic Warfare Working Group helps preserve America’s technological edge when it comes to military technology and the electromagnetic spectrum.

      Joe is also an active member in the Republican Study Committee (the conservative caucus in the House) and the bipartisan Pro-Life Caucus. He sits on the Helsinki Commission, the Tom Lantos Human Rights Commission, and the Congressional-Executive Commission on China; these commissions provide him with a forum from which to advocate for human rights internationally.

      At home, Joe is a member of the Brandywine Valley Association, the Po-Mar-Lin Fire Company, his local Rotary Club, and the Veterans of Foreign Wars.

      Among the many award and honors he has received are the Guardian of Small Business Award from the National Federal of Independent Business, The Taxpayer Hero Award from Citizens Against Government Waste, the Hero of the Taxpayer Award from Americans for Tax Reform, and the William Wilberforce Award from Prison Fellowship Ministries. He received special recognition from the North Korea Freedom Coalition for his role in passage of the North Korea Human Rights Act, and from the Brandywine Conservancy for his leadership in Congressional efforts to aid in conservation of open space.

      Joe and Ginny have three grown children and four grandchildren.

By Rep. Joe Pitts and Rep. Jim Gerlach

If you walk into an Apple store in the United States you can walk out with a brand new iPod for around $212. If you purchase from the same retailer in England, you can expect to pay the equivalent of $230. Why the difference? Much of this disparity is because of a value-added tax paid on manufactured products in Britain.

A value-added tax, or VAT, is a type of sales tax paid by raw materials producers, manufacturers, and retailers at each stage of production. This type of tax is common in most European nations, but does not exist in the U.S.

However, this situation may not last much longer. Paul Volcker, one of the President’s top economic advisors, has publicly called for a new VAT. Speaker of the House Nancy Pelosi has said that Congress should look into creating the new tax.

It is certainly true that our federal government is facing a budget crisis; we just don’t believe that a new VAT would balance our budget or allow our economy to create the millions of new jobs necessary to recover from the current recession.

Greece, Spain, and Portugal have all assessed a VAT for decades. None of these nations has used the added VAT revenue to balance their budget. During the economic bubble, tax revenue from the VAT and other sources encouraged these governments to set up lavish public sector benefits and expand government programs.

Now with the economic downturn, many of these nations are facing catastrophic deficits. The VAT didn’t make European governments responsible, why would we think things would be different in the U.S.?

Instead, the VAT is a drag on job growth. The last thing we want to do right now is reduce the buying power of a dollar through new taxes. But with a VAT, consumers would pay more at the cash register, businesses would pay more for accounting and the government would pay more to police tax payments.

Obviously, if you pay more for an iPod or other consumer goods, you will have less money to spend on something else. The VAT has a direct effect on consumer purchasing power.

Right now, sales taxes are only assessed when someone buys a consumer good. When a manufacturer sells a product to a retailer, no tax is assessed. But under a VAT, each business in the supply chain collects taxes. That means additional paperwork and accounting costs. Accounting is a worthy profession, but hiring another accountant to comply with the VAT isn’t going to make a small business more profitable.

The complexity of the VAT system means that the government needs to hire additional IRS agents and auditors to enforce the tax. A 1984 estimate by the Congressional Budget Office showed that a VAT would lead the IRS to expand its workforce by more than 20,000. A new estimate would probably show a significant increase in the number of workers needed to enforce the VAT.

By the end of the year we could see a very serious debate about whether Congress should look to the VAT to balance the budget. The President’s debt commission is searching for ways to balance the federal budget. In Washington one of the most talked about recommendations is the VAT.

Even the President himself has indicated that a VAT should be considered as a way to increase government revenue. We don’t believe that the primary problem is a lack of revenue. Instead, we have a government that has grown beyond its rightful bounds.

From 1982 to 2007, the U.S. created 45 million new jobs compared to only 10 million in Europe. There are many causes for this disparity, but among the chief reasons is a much higher tax burden on Europeans.

We’ve joined together with 155 Members of Congress in a letter calling on the debt commission to reject the temptation to recommend a VAT and instead look for ways restrain government spending. A balanced budget doesn’t have to come at the expense of American jobs.

The U.S. is one of the few industrialized nations that doesn’t impose a VAT. We believe that what makes us different from other nations is what makes our economy the strongest in the world.

  • canuckinkl

    Joe + Jim – no need to go comparing the US situation to Greece or any other EU country. In fact, the facts on a VAT are easily accessible by looking up north – way up north to Canada. Canada introduced its VAT – called the Goods and Services Tax (GST) in 1991. Beginning the following year, the new liberal government enacted significant programme spending reductions. These 2 measures – the GST and gov’t spending cuts, allowed Canada to pay down its massive debt and control budgets such that by 2000 Canada was enjoying a small surplus. The rate of Canada’s GST was originally 7% – now 5%. Imagine what the US could do with a VAT at 5% with the enormous consumption that takes place in your country. The rest of the “facts” on a VAT are this 1) it is a business friendly tax unlike sales taxes; 2) a VAT favours exports and would make US exports better able to compete in world markets, and at the same time 3) a VAT would level the playing field with imported goods into the US taxing them at the same VAT rate as domestic goods.
    Why a VAT?
    Business friendly
    Favours exports
    Level playing field

    Following from Canada’s example the US should be enjoying budget surpluses within about 10 years and could likely pay off the massive debts from ridiculous government spending on tax cuts, 2 wars etc…