Newsletter

April 16, 2010 - Senate Approves Amendment Calling VAT 'Massive Tax Increase'

The Senate this week overwhelmingly approved an amendment opposing the creation of a Value Added Tax, with opponents of a VAT saying the tax could slow the nation’s economic recovery.

The non-binding amendment to a bill extending unemployment insurance benefits was approved 85-13 on Thursday. The bill was then passed 59-38 and sent to President Obama for his signature.

The “sense of the Senate” amendment, offered by 2008 presidential candidate Senator John McCain, R-Ariz., called a VAT “a massive tax increase that will cripple families on fixed income and only further push back America’s economic recovery” and stated flatly “the Senate opposes a Value Added Tax.”

“Several of my colleagues have explained that they would support a VAT if it was replacing the federal income tax or the current corporate tax structure,” McCain said. “I have not seen a shred of evidence from the Administration or anyone in Congress that the VAT would be used as a replacement tax. I am supremely confident that – if and when it is offered – the VAT will be an additional tax on the American people. That is the last thing the American people need right now. The solution to America’s worsening government fiscal outlook is not to increase taxes, it is to cut spending.”

With the $1.4 trillion federal deficit at a post-World War II high of 10 percent and expected to reach 70 percent in the next decade, a number of economists have suggested that a VAT is the only revenue mechanism that could eliminate the shortfall. Former Federal Reserve Chairman Paul Volcker, who heads Obama’s tax reform panel, has said a VAT should be considered, and the Congressional Budget Office plans to study a VAT.

Republicans have argued that Obama and congressional Democrats plan to push for a VAT after this year’s elections. But 44 Democrats and Vermont independent Bernie Sanders joined 40 Republicans to vote for the amendment. Senator George Voinovich of Ohio was the only Republican to vote against it.

Among Democrats who supported the amendment were key players such as Budget Committee Chairman Kent Conrad, D-N.D., who has pushed for a VAT to be considered by Obama’s deficit reduction committee, Majority Leader Harry Reid of Nevada and Finance Committee Chairman Max Baucus of Montana.

NRF strongly opposes a VAT because of the impact it would have on consumer spending and retail sales.

© 2010 National Retail Federation