A Big VAT of Opposition in Congress

Yesterday the Senate voted overwhelmingly, 85-13, to approve a non-binding “sense of the Senate” resolution sponsored by Senator John McCain (R-AZ) that puts the body on record as opposed to a value-added tax (VAT).

The resolution states:

It is the sense of the Senate that the Value Added Tax is a massive tax increase that will cripple families on fixed income and only further push back America's economic recovery and the Senate opposes a Value Added Tax.

It was an amendment to legislation that Congress passed yesterday extending expanded unemployment benefits, COBRA subsidies, the Medicare “Doc fix” and other provisions through the end of May.

The VAT is a consumption tax collected at each stage of production. It is widely used in Europe and has received increasing attention in the U.S. in the search for alternatives to the inefficient and loophole-ridden income tax as a means to raise sufficient revenues in a way that broadens the tax base. The Bottom Line looked at the pros and cons of a VAT this week as a part of its Count Down to Tax Day series.

Along with the renewed interest has come fresh opposition from both sides. Liberals contend that it is regressive and conservatives fear that it will be a “money machine” to grow the government. While each of these critiques have some merit, those who are so quick to dismiss the VAT in Congress must be prepared to explain how they will pay for the spending increases and tax cuts they support. As the segment below from last evening’s NBC Nightly News (featuring CRFB president Maya MacGuineas) conveys, the current tax system is inadequate to meeting the nation’s revenue needs and the problem will only get worse.

All options, on both the spending and revenue sides, must be considered to get the nation's finances out of the vat of hot water they are in.

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