Washington Post Columnist Advocates Value-Added Tax

David Ignatius, an op-ed columnist for the Washington Post, thinks a value-added tax (VAT) may be just the ticket to get the United States out of its deficit mess.

That’s what he argued in a column on April 29:

“President Obama could champion the cause of deficit reduction. He could insist that the new bipartisan National Commission on Fiscal Responsibility and Reform that began work this week [1] consider a VAT and other aggressive measures to keep our debt from reaching crippling levels by the end of the decade,” Ignatius wrote.

He made it clear that VAT is the “right [2]” answer, but was worried that politicians “vaporized its political prospects” earlier this month when the Senate voted 85 to 13 that the VAT was a “massive tax increase that will cripple families on fixed income.”

Ignatius warned that politicians are “afraid of being right too soon,” and suggested that VAT is an example of that maxim.

Ignatius is on the same page as many liberals, and even the president’s top economic adviser Paul Volcker. Volcker said on April 6 that the VAT “was not as toxic an idea [3]” as it used to be. He also said taxes should be increased, if necessary.

But a number of conservative economists disagree. They argue that the VAT is a dangerous and hidden tax that, if added to all the other taxes Americans pay, would cripple the economy.

Dan Mitchell, a CATO senior fellow and Business & Media Institute adviser, said in a recent op-ed that a VAT would be “an economy-killer.” [4]

“Don't get me wrong: The VAT – on top of all the other taxes Washington imposes – is a terrible idea. Imposing it would pretty well finish the transformation of our country into a European-style slow-growth nation. The right way to close Uncle Sam's gaping deficits is to reverse the continued explosion of federal spending,” Mitchell wrote.

Brian Wesbury, chief economist at First Trust Advisors, explained in a column for Forbes that the hidden nature of a VAT also leads to more taxes and more spending.

“Under a VAT the extra cost of the tax will be embedded in the prices we pay as consumers, which obscures the price we as individuals are forking over to support government.” Wesbury wrote. “And what happens in every country with a VAT is that the hidden nature of the tax means it consistently moves higher.” [5]

Despite these complaints, some, like Ignatius, have supported the possibility of a value-added tax. Reuter’s columnist Christopher Swann, Fortune’s Shawn Tully and CNN.com’s Dody Tsiantar all promoted VAT taxes earlier in the year.

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