About the VAT Tax, Reich Is Right

About the VAT Tax, Reich Is Right
By Investor's Business Daily

Taxes: Former Labor Secretary Robert Reich is about as liberal as they come. Yet even he gets the obvious truth of a VAT: When added to other taxes, it would fall hardest on the poor.

Clinton's labor guy is now comfortably ensconced as a professor at Berkeley. The nine books he has written have basically helped delineate liberal thinking since the late 1970s.

Yet while many in his party, the Democrats, now yearn for a value-added tax (in addition to our current income tax) as a way to raise money to pay down the estimated $12 trillion in deficits over the next decade, Reich is having none of it.

Appearing on CNBC, Reich laid out the goods: "I worry that because it is a kind of super sales tax, it's regressive," he said. "It does not take a bigger bite out of the incomes of the wealthy than it does out of the incomes of the poor, and therefore it is a step backwards toward greater tax regressivity, as is every sales tax."

We don't agree much with Reich on anything, but on this he's right. The VAT, so beloved by Democrats, would sock the poor and the middle class - 47 million of whom today pay no taxes at all on their incomes - with higher taxes.

Whether that's fair or not is a different question. But Reich is undoubtedly correct when he assails the VAT as a "hidden" tax. Since it's levied at each level of production, and not just on the final sale, the consumer doesn't realize how much he or she has paid in taxes.

Even so, President Obama's deficit-reduction commission, a bipartisan panel created to reduce our soaring deficits, is thought by many to be leaning in favor of a VAT. But once a VAT is imposed, even at a minuscule rate of say, 2%, it will inevitably grow bigger.

Witness the experience of the European Union. When the 12 largest nations of Europe first began using the VAT in the late 1960s, it averaged a bit over 13%. Today, it averages 20.5% across those same European Union nations - a 54% increase.

Once the camel's nose gets under the tent, it's tough to keep out the rest of the hairy beast.

President Obama, on the stump in 2008 and after entering office in 2009, promised that those earning less than $200,000 wouldn't see their taxes hiked. A VAT would represent the largest tax hike on the working poor since Social Security.

The president would be wise to heed Reich's advice and avoid it like the plague - or he'll give Democratic base voters one more reason to look for change in 2012.