By Jeff Harding
Do you think a national sales tax is so far-fetched? We originally wrote about the possibility of a national sales tax in March, 2009.
President Obama appointed Paul Volker to head up a new task group to study tax reform. The problem they are studying is not to figure out how to make life easier for taxpayers, but how to get more money from us. The ostensible purpose of the task group will be to simplify the tax system, to close tax loopholes and reduce tax evasion, and reduce corporate welfare (i. e., increase corporate taxes).
Budget Director Peter Orszag said at a March 25, 2009 press conference:
The Task Force on Tax Reform that will be formed by the Volcker board will be examining ways of being even more aggressive on reducing the tax gap, which could provide funding for tax provisions …
The tax gap announced is something like $300 billion a year. We had, in the budget, some proposals to start to reduce that, but there — I think there’s widespread concern, frankly, that perhaps even this $300 billion estimate is too low because of the complexity of some of the transactions that are involved, especially involving international transactions and transfer pricing and a whole variety of other topics. So I don’t want to give you a precise quantitative estimate. I do want to say $300 billion a year or more is a lot of money, and we are interested in being as aggressive as possible in trying to reduce that number. And that’s something that I know Chairman Baucus and Chairman Rangel are also very keen on reducing.
Orszag said “the only constraint” on the task force review is that there be no tax increases during 2009 and 2010, and that the proposals shouldn’t raise taxes on families earning less than $250,000 a year.
You and I know they won’t simplify taxes at all. But they will try to squeeze more juice out of taxpayers. When they use the words “corporate welfare” what that means is that they will reduce or eliminate some of the tax breaks Congress has given business over the years. Nothing simplified; it’s just another tax increase. Volker and his Blue Ribbon task group (aren’t they all “Blue Ribbon”?) have until December to figure things out, but like all commissions, their report and recommendations will be delayed while the Administration studies the report. According to Josh Gerstein at Politico, the panel will meet secretly. That’s because they will no doubt study a national sales tax.
In a piece from the Wall Street Journal’s Real Time Economics blog, Roger Kubarych of the New York office of Unicredit said:
It is hard to visualize a meaningful reduction in the size of the federal government’s budget deficit without a substantial increase in revenues. Otherwise, upward pressures on US interest rates will become harder and harder to resist.
Kubarych says that the Obama Administration has few choices to finance the deficit:
1. [A]ccess to foreign funding is not unlimited, and domestic savings are insufficient to take their place.
2. It is highly likely President Obama will face the unenviable task of proposing new taxes, perhaps even including European-style value-added taxation.
The Daily Capitalist has been frequently discussing this gap and the question of where the money will come from to finance the deficit. We believe that foreign sources such as the Chinese will not fund a sinking dollar for the long term, and that the deficit will be much higher than the Administration projects. We believe that President Obama’s budget assumptions are Keynesian fairy tales and that stimulus spending will eventually suppress economic recovery.
We see Obama fashioning himself after European social democrats who like value-added taxes (national sales tax) a lot: the implementation of such a tax would definitely be on his table. I think such a tax would exempt the very bottom taxpayers and have a cap on the lower 50% or 60% of taxpayers who pay very low taxes.
Not far-fetched at all. Stay tuned.