AARP Gets the VAT, 11/04/10

Jim Toedtman, Editor of AARP Bulletin, decries our lack of thoughtful discussion of taxes in relation to our deficit (“The Great Tax Debate That Wasn’t,” November): ”In our global economy, shouldn’t we consider the value-added tax already in place in virtually every other industrialized nation?  How many more companies must move their operations overseas to escape our 35 percent corporate tax rate before we alter that tax strategy.”

AARP, one of the largest NGO’s, claims 40 million over-50 citizens, many of whom are on fixed retirement income.  You might think that Toedtman’s membership should fear the impact of a VAT because vocal knee-jerk opposition to VAT portrays it as an “add-on” tax, which it does not have to be.  Recently, the National Retail Foundation commissioned Ernst & Young to produce a study that shows the result of a 10% “add-on” VAT to be a loss of 850,000 jobs.  Big surprise.  The study intentionally skipped any comparison to an equivalent increase in personal income taxes. The study did not examine VAT substitution for other taxes, either.

Toedtman, along with Andy Stern (past president of SEIU and a member of the President’s Budget Deficit Reduction Commission), President Clinton, and Warren Buffett, Fareed Zakaria, (fmr.) Senator Hollings, and others have endorsed VAT because value added taxes would be good for business and labor alike.   Multi-nationals game the current corporate tax which affords the sheltering of income in lower-taxed countries, but a revenue-neutral VAT replacement for the Corporate Income Tax would eliminate that incentive and capital would be repatriated.

So who would really be hurt by the VAT?  Just think.  If a VAT were implemented with no tax preferences, then corporations who successfully work the Congress would not be able to get special loopholes.  With no incentive to jockey for loopholes, what would happen to the lobbying industry?  The revolving door for Congressmen joining lobbying firms would close.  As the late David Brinkley had wryly observed about the VAT, “Who would take Congressmen to lunch?”