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Obama: Tax The Rich, Part II   June 9th, 2009
The groundwork is being laid for tax increases       

 
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Following up on the observation I made yesterday, it would appear the groundwork is being laid to justify massive tax increases. Not just on the rich, but on the much broader middle class. As we conservatives been saying, this level of spending can't be paid for just by confiscating money from the wealthy.

The bill is far too big for only the rich to pick up. There aren't enough of them. America will have to lean on citizens far below the $250,000 income threshold: nurses, electricians, secretaries, and factory workers...

What the Obama administration isn't telling Americans is that the only practical solution is a giant tax increase aimed squarely at the middle class. The alternative, big cuts in spending, aren't part of the President's agenda. To keep the debt from wrecking the economy, the U.S. would need to raise annual federal income taxes an average of $11,000 in 2019 for all families that pay them, an increase of about 55%. "The revenues needed are far too big to raise from high earners," says Alan Auerbach, an economist at the University of California at Berkeley. "The government will have to go where the money is, to the middle class." The most likely levy: a European-style value-added tax (VAT) that would substantially raise the price of everything from autos to restaurant meals.

The growing debt will burden Americans not just with heavier taxes but also with higher interest rates and slower economic growth.


Indeed that's in line with what I commented on back in February when the Congressional Budget Office predicted that the stimulus plan would result in a long-term decrease in economic activity. As I've written many times before, there's no such thing as a free lunch.

The problem, of course, is summarized in one sentence of the article: "The alternative, big cuts in spending, aren't part of the President's agenda." THAT is the problem. The United States is continually on a path that takes it further and further away from the small, limited government that is outlined in our Constitution. And, it seems, the further away we get from the Constitution, the worse things get.

The CNN article outlines the overwhelming debt crisis that our country finds itself in and the seeming impossibilities of getting our fiscal house in order. But the reason why those challenges seem so insurmountable is because we seem unwilling to move to the smaller, limited government that the Constitution gave us. Our government is doing things that were never envisioned by the Founding Fathers and that's why we're in trouble.

That brings us back to Krugman and Ryan. Wonder of wonders, they agree again - this time that a VAT is coming. Krugman likes the idea, though he says the middle class will pay more. "There's probably a value-added tax in our future," he writes. Ryan despises the VAT as the beginning of the end of the American empire. "The VAT is definitely the trajectory Obama is putting us on," he laments. Ryan believes that the big growth in government in Europe came from the easy money it provided. He makes a good point. It's not a destiny to be desired. And when the two Pauls agree, you can bet it's where things are headed.


A VAT (Value Added Tax) amounts to a national sales tax on virtually everything we buy. They have it in the European Union (17.5% national sales tax if I remember correctly) and they have it in Mexico (15%, I believe). The absolutely appalling part is that this massive national sales tax is in addition to income tax. That means that since the government can't show any fiscal discipline they'd just tack on about 15% to everything we buy--effectively reducing our salaries by that same 15%.

In the absence of true government reform that pars down our government to something resembling what the Constitution had in mind, the possibility of a national sales tax is, to me, not out of the question. This is something that is championed by organizations such as the Fair Tax . However, a national sales tax is only reasonable if the income tax is simultaneously eliminated.

Adding a national sales (VAT) tax to the existing income tax simply because the Federal Government can't control its spending would be an outright abuse of the taxpayer and an attack on the prosperity and financial health of all Americans.

That's the kind of thing that provokes revolutions.

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