Volcker Pronounces VAT a No Go

J.D. Foster /

According to Paul Volcker, former Chairman of the Federal Reserve and a senior economic advisor to President Obama, an European-style Value Added Tax (VAT) would be a good idea for the United States but is too unpopular to be under consideration “now or for the indefinite future.”

On the one hand, Mr. Volcker’s public acknowledgment of the VAT’s unpopularity shows he is a MOTO – a master of the obvious. Even this early in the debate, 85 United States Senators stood up on April 15 to oppose a VAT.

On the other hand, Volcker’s recognition of the VAT’s enduring unpopularity throws cold water on the big-government crowd who hope to fund their massive spending dreams with VAT revenues. For example, David Ignatius writes in The Washington Post today that the sensible response to “our ballooning federal deficit” is a VAT.

Ignatius goes on to write that “by ruling out a VAT when it could keep the federal deficit in check, politicians have all but guaranteed that the debt crisis, when it comes, will be more damaging.” Not really. According to the President’s own projections revenues will soon recover to normal levels, and so the deficit problem is clearly and solely a spending problem.

What debt crisis? The European sovereign debt contagion is now well underway, taking the tourists’ Mediterranean trek first to Greece, then Portugal, on to Spain, then Italy, and washing back onto U.S. shores before long. That’s the debt crisis Ignatius refers to, and it relates closely to the Glut the Beast strategy the President concocted to finance his spending surge with a VAT splurge.

Obama’s strategy does not depend on Europe destroying its finances first, and in fact the European contagion will probably forcing Obama to move before he’s ready. The quandary Europeans suffer is they already have a heavy VAT financing their bloated spending, so they have to cut spending. Obama and friends hope to avoid reversing course on spending by convincing American taxpayers that when the debt crisis finally reaches the U.S. they will have to suck it up and go VAT. As Volcker now acknowledges, VAT not now, and not in the “indefinite future.” The Beast is going on a diet and neither Volcker, Ignatius, or Obama can stop it.