
By Joe Pitts and Jim Gerlach, Guest Columnists
If
you walk into an Apple store in the United States you can walk out with
a brand-new iPod for around $212. If you purchase from the same
retailer in England, you can expect to pay the equivalent of $230. Why
the difference? Much of this disparity is because of a value-added tax
paid on manufactured products in Britain.
A value-added tax, or
VAT, is a type of sales tax paid by raw materials producers,
manufacturers and retailers at each stage of production. This type of
tax is common in most European nations, but does not exist in the U.S.
However,
this situation may not last much longer. Paul Volcker, one of President
Obama's top economic advisers, has publicly called for a new VAT.
Speaker of the House Nancy Pelosi has said that Congress should look
into creating the new tax.
It is certainly true that our federal
government is facing a budget crisis; we just don't believe that a new
VAT would balance our budget or allow our economy to create the
millions of new jobs necessary to recover from the current recession.
Greece,
Spain, and Portugal have all assessed a VAT for decades. None of these
nations has used the added VAT revenue to balance their budget. During
the economic bubble, tax revenue from the VAT and other sources
encouraged these governments to set up lavish public sector benefits
and expand government programs.
Now with the economic downturn,
many of these nations are facing catastrophic deficits. The VAT didn't
make European governments responsible, why would we think things would
be different in the U.S.?
Instead, the VAT is a drag on job
growth. The last thing we want to do right now is reduce the buying
power of a dollar through new taxes. But with a VAT, consumers would
pay more at the cash register, businesses would pay more for accounting
and the government would pay more to police tax payments.
Obviously,
if you pay more for an iPod or other consumer goods, you will have less
money to spend on something else. The VAT has a direct effect on
consumer purchasing power.
Right now, sales taxes are only
assessed when someone buys a consumer good. When a manufacturer sells a
product to a retailer, no tax is assessed. But under a VAT, each
business in the supply chain collects taxes. That means additional
paperwork and accounting costs. Accounting is a worthy profession, but
hiring another accountant to comply with the VAT isn't going to make a
small business more profitable.
The complexity of the VAT system
means that the government needs to hire additional IRS agents and
auditors to enforce the tax. A 1984 estimate by the Congressional
Budget Office showed that a VAT would lead the IRS to expand its work
force by more than 20,000. A new estimate would probably show a
significant increase in the number of workers needed to enforce the VAT.
By
the end of the year we could see a very serious debate about whether
Congress should look to the VAT to balance the budget. The president's
debt commission is searching for ways to balance the federal budget. In
Washington, one of the most talked-about recommendations is the VAT.
Even
the president himself has indicated that a VAT should be considered as
a way to increase government revenue. We don't believe that the primary
problem is a lack of revenue. Instead, we have a government that has
grown beyond its rightful bounds.
From 1982 to 2007, the U.S.
created 45 million new jobs compared to only 10 million in Europe.
There are many causes for this disparity, but among the chief reasons
is a much higher tax burden on Europeans.
We've joined together
with 155 members of Congress in a letter calling on the debt commission
to reject the temptation to recommend a VAT and instead look for ways
to restrain government spending. A balanced budget doesn't have to come
at the expense of American jobs.
The U.S. is one of the few
industrialized nations that doesn't impose a VAT. We believe that what
makes us different from other nations is what makes our economy the
strongest in the world.
(U.S. Rep. Jim Gerlach of West Pikeland
represents the 6th District; U.S. Rep. Joseph R. Pitts of East
Marlborough represents the 16th District.)