SUBTRACTION AND EXTRACTION or MANSIONS OF EXPANSION?
Undeterred by his slide in approval ratings, Reagan took two actions that in retrospect provided a basis for his remarkable political comeback.
On one hand, he stood up to members of his own party who wanted Reagan to dump President Carter’s chairman of the Federal Reserve, Paul Volcker, a Wall Street banker who believed — then and now — in fiscal orthodoxy. Volcker, presently relegated to the backbench of Obama’s economic team, was skeptical that the vaunted supply-side tax cuts that Reagan had embraced would accomplish economic miracles. He wanted to crush inflation the old-fashioned way by tightening the money supply and raising interest rates, which he did over the protest of Reagan’s secretary of the Treasury, Donald Regan, who complained that Volcker was impeding economic recovery.
Reagan hadn’t known much about the Fed when he became president — at his first meeting with Volcker he asked him why the Federal Reserve was needed. Economist Martin Anderson, who was present at the meeting, later said that Volcker almost swallowed his ever-present cigar before launching into a cogent explanation of the role of a central bank.
Reagan was often more open to argument than either his boosters or detractors recognized. In this case, he soon became convinced that Volcker was right, and backed his policies. In retrospect, that seems an easy call, but it wasn’t. Republicans, anticipating midterm losses in 1982 as Democrats do now in 2010, were calling for Volcker’s scalp. Senate leader Howard Baker told a group of congressional Republicans, “Volcker’s got his foot on our neck, and we’ve got to make him take it off.”
Reagan’s other key decision was to get out of the White House and campaign for Volcker’s policies, which he had made his own.
With inflation finally crushed, Reagan’s tax cuts and regulatory relief kicked in. The result:
In 1983 the economy came roaring back with a growth rate of 7.6 percent.
And continued to add a quarter-million jobs per month for the rest of Reagan’s terms. Indeed, it took a quarter-century of creeping liberalism to finally wreck the economy again.
Volcker taught Reagan how to stop inflation and Reagan taught Volcker how to grow an economy. Reagan learned Volcker’s lesson, but Volcker has forgotten Reagan’s:
Volcker…said the value-added tax “was not as toxic an idea” as it has been in the past and also said a carbon or other energy-related tax may become necessary. …[H]e said getting entitlement costs and the U.S. budget deficit under control may require such moves. “If at the end of the day we need to raise taxes, we should raise taxes,” he said.
That is Volcker’s “fiscal orthodoxy”–if we want something, we should pay for it. The question is, do we want a Giant Booby-State that nurses us from cradle to cradle, keeping us as slave babies all our lives instead of men? Volcker is acting as “tax-collector for the Welfare State”, coming along behind the Democrats, sweeping up the donkey droppings after their Entitlement Day parades.
Why not challenge the spending of the Credit Card State instead of telling citizens to get a second or third job to Feed the Beast?
“The VAT tax would be bad for everyone, especially small businesses. A VAT is a very dangerous levy. Imposed at each level of production, it hits businesses hard. And given that it is hidden from consumers, it turns out to be a relatively easy tax to increase. The VAT, especially on top of an income tax, builds up government while crushing the entrepreneurial sector of our economy. The VAT idea is grossly misguided. Paul Volcker deserves enormous credit for reining in the inflation of the 1970s and early 1980s as Fed chairman, but when it comes to tax policy in the twenty-first century, his strategies will sink the economy.”
The cotton-grower collects a tax from the mill. The mill collects a tax from the designer. The designer collects a tax from the department store. The department store sells it to you with all those hidden taxes built into the price, with the regular sales taxes tacked on top–which would also be a tax on taxes!
At each stage, when “value” is “added”, government subtracts from that value by extracting a tax. It should be called a Value Subtracted Tax instead.
Even most troubling, this tax comes with a complete lack of transparency. Unlike a sales tax, which the consumer sees as a line item on their sales receipt beyond the retail price, a VAT is simply a hidden tax. It is another way for the federal government to take our money and deliberately leave taxpayers in the dark about their share of footing the bloated federal budget.
Now keep in mind, the addition of a VAT would be on top of our already overly burdensome federal tax system — meaning that you would continue to pay your federal income, payroll, capital gains, and estate taxes. Don’t be deceived into seeing this as a sister to the FairTax reform. This is an entirely new accounting which will significantly increase the price of every good you buy.
It might be worth considering…if the Income Tax were repealed first.
But the Income Tax is how liberals punish achievement, reward supporters and control behavior. Liberals would rather give up eating, breathing and having sex than give up those things.
What’s funny is that even while liberals advocate higher taxes as a solution to our problems, they ignore the fact that Europe, which is already governed along lines that liberals prefer, faces the same problems. The UK has the income tax and the VAT, but its 2009 deficit- and debt-to-GDP ratios were greater than America’s. Liberals say the only way to avoid a Grecian fiscal crisis is to hike taxes and institute a VAT. Well, Greece has had the income tax and a 19 percent VAT for years, and look where they are today. Here in the states, California has a sales tax, business tax, and one of the highest top income tax rates in the country. It’s still bankrupt.
No amount of tax revenue will stop a politician from spending the additional dollar, and a VAT doesn’t stop politicians from making promises they cannot keep. The better way to bring America’s long-term fiscal picture into balance is through dynamic economic growth and fiscal prudence. You need low taxes for one, and changes to entitlement law (raising the retirement age, pegging benefits to inflation, means-testing, restructuring Medicare) for the other. Most of all, you need to stop spending money you do not have. No new taxes need apply.
Remember Prosperity Yet? Don’t be a VAT-head.