Experts: Pelosi Value-Added Tax Devastating

Monday, October 19, 2009 9:59 AM

By: Marc Davis

Despite the hype about a value-added tax (VAT) solving some of America's economic problems, two tax experts warn of its substantial down side.

Like gasoline or cigarette taxes, a VAT tax is hidden in the costs of everyday products charged at every level of production. In the end, prices rise on most consumer goods, even though local sales taxes seem to remain the same.

Common in Europe, a VAT could block our way of the current recession write tax experts Ernest S. Christian and Gary A. Robbins in a recent op-ed in The Wall Street Journal.

Recent rumblings out of Washington from House Speaker Pelosi indicate that a value-added tax may be coming soon.

Former Fed Chairman Alan Greenspan has "reluctantly" endorsed the idea as well, said the Journal.

But Christian and Robbins have raised a red flag.

"The VAT is so slippery that academics here and abroad do not agree on who pays this seemingly magical tax," they write.

A study of the VAT recently published by the Congressional Research Service "...tends to obscure the fact that the middle class will bear the majority of its burden."

Collected on the sale of goods and services at time of purchase, a theoretical VAT rate of 17 percent — the average VAT rate in Europe — would generate about $1.5 trillion annually, the writers estimate.

Could a temporary VAT be dedicated exclusively to paying down the federal debt?

"Any tax increase big enough to repay much of the huge federal debt would devastate the economy for years to come," they warn.

Chairman of the Senate Budget Committee, Sen. Kent Conrad (D-N.D.), disagrees.

"I think a VAT and a high-end income tax have got to be on the table (for debate)," he told The Washington Post in an interview.

http://www.moneynews.com/streettalk/pel ... ode=8D57-1