By Walter Alarkon - 05/03/10 10:00 AM EDT
The idea of a value-added tax (VAT), attacked by national Republicans ever
since it was floated by a White House adviser, has some GOP supporters in
Five Republican House members are co-sponsors of a bill by Rep. Bill Pascrell (D-N.J.) that would impose a border tax on imports similar to an importing country's VAT if the U.S. government couldn't negotiate a way to cut trade imbalances. In the Senate, George Voinovich (R-Ohio) has suggested that replacing income taxes with a VAT could be one way to streamline the tax code.
Voinovich was one of just 13 senators to vote against a "sense of the Senate" resolution offered by Sen. John McCain (R-Ariz.) in April calling the VAT "a massive tax increase that will cripple families on fixed income and only further push back America’s economic recovery." Every other Republican and most Democrats voted for the non-binding resolution.
Consumption tax proponents on both sides of the aisle have said the VAT could be the key to a tax code overhaul that increases the competitiveness of U.S. exports and brings down taxes on income that discourage saving and investment. The VAT is levied at each stage of production of a good and is part of the tax system for most industrialized countries.
The attacks on the VAT by the Republican National Committee — and McCain — have been based on the notion that it would be added on top of the current income tax structure.
Voinovich and Rep. Walter Jones (R-N.C.), a co-sponsor of Pascrell's
bill, said the VAT and other consumption taxes
should at least be considered by President Barack Obama's fiscal
commission as it works on producing a plan that would reduce, in the
least painful way possible, the massive deficits expected over the next
Jones took issue with those who immediately dismiss the idea of consumption taxes. He said Congress should allow experts to analyze various tax reform plans before judging them.
"You get one politician says this, one politician says that, one former secretary says this, and nothing's coming together," Jones said.
The other House Republicans who have co-sponsored Pascrell's bill are Reps. Gresham Barrett (S.C.), Howard Coble (N.C.), Lynn Westmoreland (Ga.) and Joe Wilson (S.C.).
The RNC pounced on Democrats' talk about a VAT after Paul Volcker, the former Federal Reserve chairman and economic adviser to Obama, suggested last month that higher taxes, and possibly a VAT or carbon tax, would be needed to close deficits. The RNC later sent to reporters Obama's response in an interview that he wouldn't rule out a VAT despite his campaign pledge not to raise taxes on individuals making less than $200,000 and couples making less than $250,000.
"Obama will use [the] deficit commission to push for European-style value-added tax despite the fact that the tax would violate his campaign pledge [and] hit middle-class American families hard all to pay for his record binge spending spree," the RNC wrote in one blast e-mail to reporters.
Republicans who want a VAT only want it in place of other taxes and charge Democrats with seeking to have a VAT in addition to the current tax structure, an RNC aide said.
The co-chairman of Obama's fiscal commission, former Sen. Alan Simpson (R-Wyo.), took issue last week with GOP attacks against the VAT as the panel met for the first time.
After hearing the criticisms, Simpson said, "You'd think you're coming in and slapping it on top of the income tax.
"If you do a VAT tax, you've got to do some adjustments to the income tax," he said.
The exchanges over the VAT between Republicans in Congress and Simpson have already become heated.
Rep. John Linder (R-Ga.), who has called for ending federal income taxes and using a national sales tax, suggested that the VAT would end up being a "money machine" that would lead directly to more government. When told about Simpson's concern that critics were distorting his panel's work, Linder attacked the former Republican senator for his support for gay and lesbian rights.
"How does he sort that out from his conversation about gay marriage?" Linder told The Hill, referring to Simpson's opposition to a constitutional amendment banning same-sex marriage.
"Milton Friedman summed it up," he added. "The value-added tax is the most efficient way to raise revenues and government. It's the most effective way to increase the size of government."
Simpson fired back.
"What the hell is he talking about?" Simpson said. "That is bulls--t."
He said that Linder "must be a homophobe" and called for him to talk to the House Republicans on the fiscal commission, who haven't ruled out any fiscal reform proposals. He emphasized that a VAT wouldn't be enacted unless significant changes were made to the current tax code.
The attacks, however, have started to make VAT proponents wary of pressing for it.
“I don’t think it’s on the political table now or for the indefinite future," Volcker said during a summit on the debt sponsored by the Peter G. Peterson Foundation. "But that’s the kind of thing you have to look at.”
Pascrell said the problem with talking about the VAT is not the tax itself, but the looming midterm election.
"I don't think you want to bring it up now because it would be divisive in our own party and it would be divisive on the other side's party," Pascrell said in an interview. "I will stand by what I've introduced. I think it's important on the way to level off the imbalance in trade because other countries [with a VAT] subsidize their manufacturers, and we don't."
This post has been updated from its original version, and its initial characterization of Rep. Pascrell's bill has been corrected.