Apr 27, 2010
VAT this, Vat that
Consider this…
Washington is abuzz with talk of a value added tax (VAT)***. Paul Volcker, the former Federal Reserve Chair and current White House economic advisor, has proclaimed a VAT “not as toxic an idea” as in the past. The head of the Congressional Budget Office rather mysteriously alluded to the fact that unnamed members of Congress were interested in a VAT and that he expected to look more deeply into it. And the President himself, in an interview in late April, refused to take the idea off the table.
Amidst all of this talk, the Senate voted 85-13 for a non-binding resolution opposing a VAT as a massive tax increase. The Shakespeare line about the lady protesting too much comes to mind.
The attractiveness of a VAT is simple: it raises loads of money and it can do so quickly, semi-invisibly and, some say, painlessly. Over 130 other countries already have some form of VAT in place. In the U.S. every percentage point of a VAT would raise $100 billion dollars a year- thus a ten percent VAT would generate an eye-popping one trillion dollars.
There are of course significant downsides: The tax is regressive, it can get complicated VERY quickly (consider that in Great Britain shrimp crackers made with tapioca are exempt from the VAT while shrimp crackers made with cereal are not) and it will discourage policymakers from taking a hard look at government spending.
Why is this a debate the philanthropic community should follow? Quite simply, every dollar in taxes - be they income taxes or a VAT, is a dollar that won’t be spent on private philanthropy. We plan to follow this debate as it unfolds and be sure that key policymakers are aware of the impact such a proposal could have on private giving in this country.
*** VAT is a type of consumption tax that is placed on a product whenever value is added at a stage of production and at final sale.