On Sunday, 219 House Democrats, soothed by their leaders' gaming of the CBO scoring process, voted in reckless disregard of what the bond market has been telling them. Some may share Speaker Nancy Pelosi's optimism that the government's looming fiscal disaster can be avoided by imposing a value added tax -- in effect, a national sales tax.
Gee, there's a great idea. And the drums are already beating from the op-ed hamsters. The always-reliable David Brooks thinks it's inevitable:
The task ahead is to save this country from stagnation and fiscal ruin. We know what it will take. We will have to raise a consumption tax. We will have to preserve benefits for the poor and cut them for the middle and upper classes. We will have to invest more in innovation and human capital.
The issue with a VAT is simple: it's a tax designed to be hidden from view. The end consumer pays the tax in a hidden way, as producers up and down the supply chain pass along their costs. Eventually everything you buy will cost 15-20% more than it would have ordinarily. And that is a best-case scenario, given the way the feds have been printing money. Ever since Paul Volcker and Ronald Reagan wrung the Carter-era monetary bungles out of the economy, inflation has been modest. We are currently recreating the economic conditions of the 1970s, with a vengeance.
Will this cunning plan work? Back to Barone:
But, as we know from the experience of high-tax Western Europe and relatively low-tax America over the last three decades, higher taxes tend to retard economic growth. Lower economic growth means less revenue for government than in CBO projections. Less revenue means more borrowing -- and at some point lenders are going to call a halt.
And already we're seeing the implications, as Moody's has already threatened to lower the credit rating for U.S. Treasuries:
If Moody’s were to downgrade the country’s rating, the impact could be severe. It would signal to lenders worldwide that the US is no longer one of the safest places to invest money.
That, in turn, would threaten the country’s ability to borrow freely and extensively from other countries on favorable terms. Investors would likely demand a higher interest rate to finance US debt, which would push federal debt higher still.
And remember, Moody's issued this warning last week, before the House passed ObamaCare. Not to put too fine a point on it, but as our Vice President said today in a different context, this is a big $@*! deal.
Let's be honest here -- the VAT is going to be a non-starter, and it should be. There's only one sure way to stop this madness and that is cut down on the spending. It's going to suck, but the current path Obama and the rest of his minions are charting will be a whole lot worse.