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Krauthammer Predicts European-Style VAT Tax

Jeff Poor
Business & Media Institute
March 24, 2010

Remember when it was the liberals that considered the potential of a value added tax or VAT in the United States? More and more, conservatives are starting to express their concerns about it becoming a reality.

The VAT is a consumption tax that is placed on a product whenever value is added at a stage of production and at final sale. For example, as Investopedia.com explains, “When a television is built by a company in Europe the manufacturer is charged a VAT on all of the supplies they purchase for producing the television. Once the television reaches the shelf, the consumer who purchases it must pay the VAT that applies to him or her.”

Now that health care reform has actually been passed by Congress, the options of stopping it are growing more and more limited.  According to syndicated columnist Charles Krauthammer, this expensive unfunded liability won’t likely be undone in the Supreme Court.

“The first question is, will the courts act on this? I think there is a very good case, a very strong case you can make that the Commerce clause has never been used to force an individual to engage a contract with a private institution, i.e. an insurance company here,” Krauthammer said on FNC’s March 22 “Special Report with Brett Baier.” “Although – so I think there is a strong case. But I cannot imagine that the courts will overturn a piece of legislation this large. So, just as a practical prediction on this, I think it’s unlikely, although I would like to see Justice [Samuel] Alito write the overturning opinion.”

Therefore, Krauthammer contends this liability will lead to the federal government instituting a VAT for the first time in the United States.

“But then I think there is a larger issue here,” Krauthammer said. “I think ultimately Obama understands that he has just added an unbelievably large entitlement on to a country drowning in debt. He is not stupid. I think he is anticipated this, and I think he is, from the beginning, had a plan and the plan is he is going to use the Deficit Reduction Commission, which will report only after November, and I’m absolutely sure it will recommend something new in American history, a national sales tax which is called a VAT in Europe.”

Krauthammer suggested liberals believe this is how to fund an entitlement state and not have the public notice, as would be the case with income taxes. And this will be an issue for the 2012 presidential election.

“All the Europeans who have the kind of entitlements America is now going to have, health care and all the others, need the VAT, because it’s a gusher of income for the government,” Krauthammer continued. “And once you have that, even very small levels – a percent or two of a national sales tax – that’s how the liberals think they will be able to fund this new very expanded entitlement state. It’s the way it’s done in Europe. It’s going to have to be done here. And that, I think, is going to be the argument in the president’s election of 2012.”

As Chris Edwards pointed out for Cato @ Liberty last year, a VAT wouldn’t be a cure-all. Instead, this would encourage more spending and higher tax rates, causing an impediment to U.S. economic growth.

“In sum, a VAT would not solve our deficit problems because Congress would simply boost its spending even higher, as happened in Europe as VAT rates increased over time,” Edwards wrote. “Also, a VAT is not needed to cut the corporate income tax rate because a corporate rate cut would be self-financing over the long-term as tax avoidance fell and economic growth increased.”

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