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Forces Gearing Up to Battle Value-Added Tax

Retail associations, anti-tax groups and even some progressive organizations are dusting off battle plans to fight a potential new tax they say would cripple the economy and unfairly target the poorest Americans.

The idea of a value-added, or national retail, tax has quietly been floated by some Democrats as a possible way to raise revenue. And last week after reports surfaced that the Obama administration might be eyeing the idea more seriously, groups that oppose the tax kicked into gear. Americans for Tax Reform, for one, sent out a letter Friday to Members of Congress urging them to join a long-dormant Anti-VAT Caucus.

“It’s [the Democrats’] plan,” ATR President Grover Norquist said. “It’s always been their plan. It is the only way to get the kind of money that they need to increase the size of government. They have to lie their way into office, but once safely in power, this has always been their plan.”

Rachelle Bernstein, vice president and tax counsel at the National Retail Federation, said that while a VAT is never a good idea, in the current economic climate, it would be particularly harmful.

“It would be a terrible thing,” she said. “During a period of economic downtown, you do not want to put an additional burden on consumption. It would deepen and prolong the current recession.”

Bernstein added that consumer spending is already down, and that the retail sector lost about 550,000 jobs last year and another 150,000 jobs in the first quarter of 2009.

“This would not be a good thing for the economy as a whole or for our industry,” she said. “The concept of a value-added tax or national sales tax comes up every few years. You need to keep educating policymakers. You can’t just ignore it.”

Norquist said his group is working to re-energize a Congressional Anti-VAT Caucus. “Our goal would be to get 100-plus Congressmen and dozens of Senators,” Norquist said in an interview. “This is going to be a major issue in 2010 and 2012.”

In his letter to Members, Norquist referenced a Washington Post article from last week and wrote that, “President Obama and Congressional Democrats have proposed a series of tax hikes on the American people to pay for government-run health care. ... I am writing you today to give you the opportunity to join the pro-taxpayer, Anti-VAT caucus.”

Norquist said one key is getting enough Congressional Democrats to join the Anti-VAT Caucus to send a message that such a proposal would be dead on arrival. Already, the caucus, according to Norquist’s group, includes some Democrats such as Rep. Frank Pallone (D-N.J.), but the vast majority of its 45 members are Republicans. They include Sens. John McCain (Ariz.) and Pat Roberts (Kan.), House Ways and Means ranking member Dave Camp (Mich.) and Reps. Bob Goodlatte (Va.) and Zach Wamp (Tenn.).

“You want to get enough Democrats on, if you can, to get an absolute majority,” Norquist said, “or at least all of the Republicans, so it won’t be bipartisan.”

Former House Majority Leader Dick Armey (R-Texas) had been a co-chairman of the caucus while serving in Congress. Now he is a lobbyist with DLA Piper and chairman of FreedomWorks, and he is continuing the fight against the tax.

“As these guys want to have a federal takeover of health care in the United States and ... as they grow the government, they have got to fund the government,” Armey said of Democrats. “The fact of the matter is they’re going to be looking for additional tax revenues.”

Armey said his fight against health care reform proposals and a VAT or national sales tax will be intertwined.

“Their main object is to have the government in control of health care,” he said. “We believe that, quite frankly, we can stop the nationalization of health care. We stopped it in ’94, and we can stop it with Obama.”

When it comes to the tax, though, many lobbyists say it would be a long shot at best for passage.

Tax lobbyist Ken Kies, who served as chief of staff to the Joint Committee on Taxation in the 1990s, called VAT’s chances this Congress “pretty far out,” even though he wrote an article in May warning that a VAT proposal could be on the horizon because of the mounting fiscal deficit.

If government spending creeps up and the deficit continues to rise, “the administration is going to have to say we have a solution,” Kies said. However, he noted, “it could get serious if in a presidential campaign, one of the two candidates said we need to do this and whoever it was won. Unless you have a mandate from the people, then doing this is way too risky politically.”

One leading argument against a VAT or national sales tax is that it would disproportionately tax those at the lower income levels because they spend a greater percentage of their income than people at higher income levels.

Kies said there’s a way to get liberal groups on board by offering a refundable credit to people under a certain income and by exempting certain goods from the tax.

Toby Chaudhuri, spokesman for the progressive organization Campaign for America’s Future, said his group does not support the idea.

“Our tax code is already too regressive — with income from wealth taxed at lower rates than income from work, with lower top end tax rates and increased tax loopholes, with payroll taxes the most regressive of all,” he said. “We should be focused on progressive tax reforms — raising the top end rates, closing down tax havens, raising rates on capital gains, taxing speculation with a small financial transaction tax. A national sales tax is the worst of the alternatives.”

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