Is A 6.5% VAT Coming?
Confirming once again that the clueless government would rather risk a populist backlash than actually cutting costs (recall that federal worker compensation has surged in the past 5 years), it appears that the long-stirring debate over a value added tax may be about to materialize into something tangible. Per Bloomberg, "Alice Rivlin, a member of President Barack Obama’s deficit-reduction commission (and former Fed vice chairwoman), is trying to stir a debate over imposing a national sales tax to reduce the deficit. Rivlin, as part of a separate 19-member group sponsored by the Bipartisan Policy Center in Washington, offered a plan for a 6.5 percent national debt-reduction sales tax. Her recommendation comes as the president’s panel prepares a Dec. 1 report of options for Congress to trim the national debt." Coming from a former Fed member, this is not all that surprising - after all, there is nothing to stir inflation expectations like a sudden 6.5% hike in all prices.
Rivlin, a former Federal Reserve vice chairwoman and Democrat, and the co-chairman of the policy center group, former New Mexico Republican Senator Pete Domenici, are offering a more aggressive approach to tax increases and cuts to Medicare.
“It’s very difficult, and they want to go further,” said Alan Simpson, a Republican former Wyoming senator who is co- chairman of the president’s commission.
Jim Horney, director of federal fiscal policy at the Center on Budget and Policy Priorities in Washington, said the Rivlin group may be “somewhat more realistic” about how much revenue is needed to close the deficit.
The more aggressive plan may help the presidential panel sell unpopular remedies by painting an even starker picture of the measures needed to tame the debt.
The presidential panel’s co-chairmen, Simpson and Erskine Bowles, former President Bill Clinton’s chief of staff, drew criticism Nov. 10 when they proposed their $3.8 trillion report.
Luckily, there are at least some people in the administration who are not completely ignorant when it comes to economic issues:
Simpson suggested it isn’t likely his group will take up the sales tax recommendation.
“There’s no need to get into it about their plan versus our plan,” he said. “We’ve pissed enough people off in America to last forever. We don’t need any more people.”
On the other hand, this would be a perfect smokescreen to the tax cut extension smokescreen, and may be used as a trump card should Obama yield on this so critical to the republicans issue. Coming from an administration whose modus operandi is to create adverse shocks for the middle class that benefit the top 0.01% social strata, we will reserve judgment over how stupid this proposal is until it is actually not implemented.
Amusingly, confirming that even the Rivlin-Domenici alternative plan will do absolutely nothing to fix America's spiraling debt level is the following admission:
The nation also cannot grow its way out of the deficit, the
group’s report says. Just to stabilize the debt at 60 percent of
gross domestic product, the economy would have to grow at a
sustained rate of more than 6 percent a year for at least the
next 10 years, it says. The economy hasn’t grown by more than
4.4 percent in any decade since World War II.
In other words, the best America can do is fiddle as the debt fire gets ever bigger.
As for tax hikes, finally someone sees the light:
Finally, the problem also can’t be solved simply by raising
taxes on wealthy Americans, the report says. Reducing deficits
to manageable levels by the end of the decade would require
raising rates on the top two income brackets to 86 percent and
91 percent, the report says.
All this confirms that when an economy is experiencing a meltdown in shadow money to the tune of ~$10 trillion over a few years (and much more coming), there is absolutely nothing that can be done to fix it, and the best remedy is hoping for a delay of the inevitable. For what happens on the other side, see recent social celebrations of the failure of the "spending-austerity" dilemma in Greece, France, London and Ireland.