VAT Would Be One Big Tub Of Trouble

Conservatives need to be very clear about what a VAT is, and why it is such an insidious form of taxation. As prices go up, because the tax is hidden in the end price of the product, people blame the manufacturer or the retailer and don’t realize it is the government driving the cost increase. In that sense it is like inflation, a hidden tax.

Ask a man on the street what VAT means. After giving you a strange look, he'll probably give an answer along the lines of "a large tub." In a way, he'd be right: America's on-again, off-again move towards a Value Added Tax (VAT) is a metaphorical large tub, into which huge but nearly untraceable amounts of money will disappear.

A VAT is a tax on each stage of production, calculated according to how much value each producer adds to its products.

In the search for ways to reduce the record $1.4 trillion federal budget deficit, the VAT has occasionally popped up. In May a spokesman for President Barack Obama's budget director, Peter Orszag, expressed openness to the idea. Just last month, House Speaker Nancy Pelosi said on "Charlie Rose" that a VAT was "on the table."

It should be taken off. The root cause of the deficit is too much spending, not too little taxing. Putting a new tax on top of what we already pay is the wrong approach.

As far as taxes go, the VAT is especially destructive. If Congress is going to increase taxes, installing a VAT is one of the worst options.

For one, it would require roughly doubling the size of the IRS. Fifteen years ago, CBO estimated compliance and administrative costs for a VAT at $8.5 billion annually. That figure can safely be placed at more than $10 billion by now. The IRS' entire budget is currently $11.4 billion.

VATs are also untransparent. When traditional sales taxes are added to the goods we buy, we know the amount simply by looking at our receipts.

But VATs are hidden. Since manufacturers pay them in advance, they are factored into the prices consumers pay. VATs do not show up on receipts.

Knowing how much we are taxed is a fundamental right that preserves our ability to challenge excess government in a constitutional republic. A VAT would take that away.

Americans work more than one-third of the year for federal, state, and local governments before keeping a dime for themselves. We can still know, to the penny, how much we pay by looking at our pay stubs and old 1040 and state income-tax returns.

This transparency is one of the few checks that citizens have against runaway tax increases. Because a VAT is so easily hidden, consumers can shoulder a massive tax burden and not know it. VATs are fundamentally unfair.