Once Considered Unthinkable, U.S. Sales Tax Gets Fresh Look
Levy Viewed as Way to Reduce Deficits, Fund Health Reform

By Lori Montgomery
Washington Post Staff Writer
Wednesday, May 27, 2009

With budget deficits soaring and President Obama pushing a trillion-dollar-plus expansion of health coverage, some Washington policymakers are taking a fresh look at a money-making idea long considered politically taboo: a national sales tax.

Common around the world, including in Europe, such a tax -- called a value-added tax, or VAT -- has not been seriously considered in the United States. But advocates say few other options can generate the kind of money the nation will need to avert fiscal calamity.

At a White House conference earlier this year on the government's budget problems, a roomful of tax experts pleaded with Treasury Secretary Timothy F. Geithner to consider a VAT. A recent flurry of books and papers on the subject is attracting genuine, if furtive, interest in Congress. And last month, after wrestling with the White House over the massive deficits projected under Obama's policies, the chairman of the Senate Budget Committee declared that a VAT should be part of the debate.

"There is a growing awareness of the need for fundamental tax reform," Sen. Kent Conrad (D-N.D.) said in an interview. "I think a VAT and a high-end income tax have got to be on the table."

A VAT is a tax on the transfer of goods and services that ultimately is borne by the consumer. Highly visible, it would increase the cost of just about everything, from a carton of eggs to a visit with a lawyer. It is also hugely regressive, falling heavily on the poor. But VAT advocates say those negatives could be offset by using the proceeds to pay for health care for every American -- a tangible benefit that would be highly valuable to low-income families.

Liberals dispute that notion. "You could pay for it regressively and have people at the bottom come out better off -- maybe. Or you could pay for it progressively and they'd come out a lot better off," said Bob McIntyre, director of the nonprofit Citizens for Tax Justice, which has a health financing plan that targets corporations and the rich.

A White House official said a VAT is "unlikely to be in the mix" as a means to pay for health-care reform. "While we do not want to rule any credible idea in or out as we discuss the way forward with Congress, the VAT tax, in particular, is popular with academics but highly controversial with policymakers," said Kenneth Baer, a spokesman for White House Budget Director Peter Orszag.

Still, Orszag has hired a prominent VAT advocate to advise him on health care: Ezekiel Emanuel, brother of White House chief of staff Rahm Emanuel and author of the 2008 book "Health Care, Guaranteed." Meanwhile, former Federal Reserve chairman Paul A. Volcker, chairman of a task force Obama assigned to study the tax system, has expressed at least tentative support for a VAT.

"Everybody who understands our long-term budget problems understands we're going to need a new source of revenue, and a VAT is an obvious candidate," said Leonard Burman, co-director of the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution, who testified on Capitol Hill this month about his own VAT plan. "It's common to the rest of the world, and we don't have it."

Seeking New Revenue

The surge of interest in a VAT is testament to the extraordinary depth of the nation's money troubles. While some conservatives have long argued that a consumption tax would provide a simpler and more efficient alternative to the byzantine U.S. income tax code, this time it's all about the money.

The federal budget deficit is projected to approach $1.3 trillion next year, the highest ever except for this year, when the deficit is forecast to exceed $1.8 trillion. The Treasury is borrowing 46 cents of every dollar it spends, largely from China and other foreign creditors, who are growing increasingly uneasy about the security of their investments. Unless Congress comes up with some serious cash, expanding the nation's health-care system will only add to the problem.

Obama wants to raise income taxes for high earners and impose new levies on business, but those moves would not generate enough cash to cover the cost of health care, much less balance the budget, and they have not been fully embraced by Congress. Obama's plan to tax greenhouse-gas emissions could raise trillions of dollars, but again, Congress is balking.

Key lawmakers are considering other ways to pay for health reform, including new taxes on sugary soda, alcohol and employer-provided health insurance. The last proposal could raise a lot of money -- nearly $1 trillion over the next five years, according to White House budget documents. But options on the table would raise a fraction of that sum. And while it might pay for health care, it would barely dent deficits projected to total nearly $4 trillion over the next five years and to grow rapidly in the future, as baby boomers draw on Social Security and Medicare.

Enter the VAT, one of the world's most popular taxes, in use in more than 130 countries. Among industrialized nations, rates range from 5 percent in Japan to 25 percent in Hungary and in parts of Scandinavia. A 21 percent VAT has permitted Ireland to attract investment by lowering its corporate tax rate.

The VAT has advantages: Because producers, wholesalers and retailers are each required to record their transactions and pay a portion of the VAT, the tax is hard to dodge. It punishes spending rather than savings, which the administration hopes to encourage. And the threat of a VAT could pull the country out of recession, some economists argue, by hurrying consumers to the mall before the tax hits.

A VAT's Bottom Line

What would it cost? Emanuel argues in his book that a 10 percent VAT would pay for every American not entitled to Medicare or Medicaid to enroll in a health plan with no deductibles and minimal copayments. In his 2008 book, "100 Million Unnecessary Returns," Yale law professor Michael J. Graetz estimates that a VAT of 10 to 14 percent would raise enough money to exempt families earning less than $100,000 -- about 90 percent of households -- from the income tax and would lower rates for everyone else.

And in a paper published last month in the Virginia Tax Review, Burman suggests that a 25 percent VAT could do it all: Pay for health-care reform, balance the federal budget and exempt millions of families from the income tax while slashing the top rate to 25 percent. A gallon of milk would jump from $3.69 to $4.61, and a $5,000 bathroom renovation would suddenly cost $6,250, but the nation's debt would stabilize and everybody could see a doctor.

Sales Tax Gains Momentum

Burman, who helped House Democrats craft an unsuccessful 2007 plan to repeal the alternative minimum tax, said he's received a number of phone calls from lawmakers interested in his idea, though "they can't quite imagine how to make it happen politically." Burman said the 25 percent rate has caused some sticker shock, and he's trying to figure out how to bring it down.

Graetz's proposal drew an endorsement from Volcker, who last year called it "a sensible plan for reform." (Volcker did not respond to a request for comment.) It also has piqued the interest of Conrad, the Senate Budget Committee chairman who argues that it could be modified to accommodate Obama's pledge not to raise taxes on families who make less than $200,000 a year.

"I think interest is quietly picking up," Graetz said. "People are beginning to recognize that the mathematics of the current system are just unsustainable. You have to do something. And a VAT has got to be on the table if you want to do something big and serious."

Still, the Senate Finance Committee declined to include a VAT among the options it is considering to pay for health reform. And even VAT supporters doubt the tax will find a place among the tax-reform proposals the Volcker panel has been asked to produce by Dec. 4.

Though the nation's fiscal outlook is grim, Burman said "the situation will have to get more desperate" before lawmakers are likely to consider a new levy aimed directly at the pocketbooks of every one of their constituents.

Most lawmakers are still looking for "a painless source of revenue" to overhaul the health-care system and dig the nation out of debt, Burman said. "Who knows?" he added. "Maybe the tooth fairy will bring that to them."

 

PATRICK MCSWEENEY TIMES-DISPATCH COLUMNIST
Published: March 29, 2009

Frank Atkinson, a longtime participant in Republican politics at the highest levels, offered his analysis of the 2009 Virginia gubernatorial race in last Sunday's Commentary section. His conclusions, as usual, are thoughtful, but don't withstand close scrutiny.

Atkinson begins with the obvious proposition that a winning candidate must attract support from swing voters who are not committed to either of the major political parties. For decades, neither of the two parties has enjoyed the dependable support of a majority of Virginia voters. Every statewide candidate has had to earn the support of his or her party's base as well as a sufficient number of independents and members of the opposing party in order to prevail.

Contrary to Atkinson's suggestion, no one (not even those he labels "partisan true-believers") has argued that the Republican candidate should appeal to his hard-core base exclusively. The debate within the GOP is over how best to secure the support of a majority of voters.

Atkinson was a member of George Allen's inner circle during the 1993 gubernatorial race. Allen portrayed himself as a principled conservative and won handily. His successor, James Gilmore, also ran as a dedicated conservative and defeated a popular Democrat, Lt. Gov. Donald Beyer, in 1997.

The last two Republicans who ran for governor -- Mark Earley in 2001 and Jerry Kilgore in 2005 -- blurred their positions on key issues in an attempt to gain the support of independents and Democrats. Neither came close to obtaining the support of conservatives and moderates that Allen and Gilmore had obtained.

Kilgore's disastrous debate performance before the Fairfax Chamber of Commerce was emblematic of the failure of his campaign strategy to avoid taking a strong position on social issues. He refused to take a stand on whether he would sign or veto legislation prohibiting abortion, saying it was a hypothetical question.

The moderator of that debate, the late Tim Russert, then asked Kilgore if he would veto a tax increase. When Kilgore answered he would, Russert pointedly remarked that the tax question was also hypothetical. Kilgore never recovered in that debate or in his campaign.

Earley ran his campaign in 2001 aggressively reaching out to Democrats and independents. He failed to hold the Republican base and gained little ground with other voters.

What greatly distresses many who have faithfully supported Republican candidates who pledged to hold fast to conservative principles, but too often didn't, is to be told that Republicans can't win unless they compromise those principles. Conservatives have heard that contention since at least 1964 and have never been persuaded.

Ronald Reagan rejected that argument in his famous "Time for Choosing" television speech immediately before the 1964 election. He challenged it again in 1976, 1980, and 1984. From the outset, Reagan was considered by the media and many GOP insiders to be too conservative to win.

John McCain is presumably the kind of moderate that Atkinson considers a model. McCain made an extraordinary effort to appeal to Democrats and independents, highlighting his record of bipartisanship. His inconsistent support for conservative principles left voters confused about his political agenda and how he would make decisions if elected. What support he received from conservatives depended less on his message than on his selection of a conservative running mate.

It is worth noting that George W. Bush received 40,000 more votes in Ohio in 2004 than McCain did in 2008. Bush attracted social conservatives by taking strong positions on their issues. Many of those voters either stayed home or supported Barack Obama last November.

Former U.S. Sen. Phil Gramm was fond of saying that the Republican Party attracted him to switch parties because it was a Big Magnet, not because it was a Big Tent. He argued that Republican candidates could continue to galvanize the party's base and simultaneously draw support from independents and Democrats by unapologetically campaigning on conservative principles. That's still a winning strategy.

Conservatives in the Virginia GOP have watched the party lose control of the State Senate, much of its overwhelming majority in the House of Delegates, the past two U.S. Senate elections, and the past two gubernatorial elections. For conservatives, the answer is obvious: Republican candidates and their consultants decided to downplay or even abandon conservative positions and to run Democrat-lite campaigns.

The moderate Republicans who urge this approach are driven by polls, not principles. Their commitment to limited government, the free enterprise system, and moral verities will not survive the first puff of popular opposition. Positions are determined by what consultants and pollsters conclude the voters want to hear. There is no room in their playbook for principled leadership based on genuine conservatism.

The problem for Republicans is not that they have tried conservative principles and have failed. The problem is that they have not tried them enough.

---

Patrick M. McSweeney is a Richmond attorney and former chairman of the Republican Party of Virginia. Contact him at pmcsweeney@mcsweeneycrump.com .

 The Founding Fathers intended that the people take active role in the political process in OUR country.  The Public hearing was sparsely attended this evening with no more than 60 people, the vast majority were teachers and other county employees.  I commend those that were on hand to speak their concerns. I also want to thank Board Member Carson Tucker for stating  that we, as a county are headed for a train wreck if we don't make cuts now, and not wait until  the Federal money dries up.

Powhatan sets hearing on budget that maintains tax rate

JAMIE C. RUFF TIMES-DISPATCH STAFF WRITER
Published: March 7, 2009

POWHATAN -- The Board of Supervisors is advertising a $71.9 million budget that maintains the current tax rate.

During a meeting this week, the board set a public hearing on the 2010 budget for 7 p.m. March 23 in the Powhatan High School auditorium. Supervisors are scheduled to adopt the county budget April 6.

The proposed budget calls for the county's real estate tax rate to remain at 71 cents per $100 of assessed value and the personal property tax rate at $3.60 per $100 of assessed value.

The proposal includes $15.2 million in general government funding, $1.6 million in social services funding, $2 million in utilities funding, $7.1 million in debt services funding, $1.4 million in school food funding and $450,000 in cash proffer funding.

The budget also includes $44.1 million in school funding, including $19.7 million in local funds for the school system -- representing the same level of funding as this year.

Paul Imig, assistant superintendent for finance and budget operations, told the supervisors that besides expecting level funding from the county, school officials built their budget with the anticipation of losing $2 million in state and federal funds.

"That didn't just happen," Imig told the board Wednesday. "That was significant."

Imig said the system could also receive $861,700 in federal stimulus funds, and board Chairman Robert R. Cosby said that it is possible the stimulus money could free some county funds currently earmarked for the school system.

Cosby said that should the stimulus money allow the system to receive more than the $44.1 million the system is advertising for its budget, "we've got to do some talking."

---