If VAT, Ditch the Income Tax

WASHINGTON -- When liberals advocate a value-added tax, conservatives should respond: Taxing consumption has merits, so we will consider it -- after the 16th Amendment is repealed.

A VAT will be rationalized as necessary to restore fiscal equilibrium. But without ending the income tax, a VAT would be just a gargantuan instrument for further subjugating Americans to government.

Believing that a crisis is a useful thing to create, the Obama administration -- which understands that, for liberalism, worse is better -- has deliberately aggravated the fiscal shambles that the Great Recession accelerated. During the downturn, federal revenues plunged and spending soared. And, as will happen for two decades, every day 10,000 more baby boomers are joining the ranks of recipients of Medicare and Social Security, two programs with unfunded liabilities of nearly $107 trillion.

In the context of this concatenation of troubles, the administration's highest priority was to put an enormous new health care entitlement on the welfare state's rickety scaffolding. Why? Because the liberals' lunge to maximize government's growth depends on quickly creating a crisis that can be called a threat to the entitlement menu, and to the currency as a store of value. Then the public can be panicked into accepting the addition of a VAT to the existing menu of taxes.

A VAT is collected on value added at stages during the process of production, but most of its burden is borne by consumers. They file no VAT returns, so its stealthiness delights the political class, which can increase it in small, barely noticed increments, with every percentage point yielding another $100 billion.

Although the nation's welfare often varies inversely with that of the political class, a VAT would ameliorate a real problem: Americans consume too much and save too little. Furthermore, today's baroque tax code drives economic distortions and enables corruptions.

Corporations do not pay taxes, they collect them, passing the burden to consumers as a cost of production. And corporate taxation is a feast of rent-seeking -- a cornucopia of credits, exemptions and other subsidies conferred by the political class on favored, and grateful, corporations. Because the income tax is not broadly based, it radiates moral hazard: Its incentives are for perverse behavior. The top 1 percent of earners provide 40 percent of that tax's receipts; the top 5 percent provide 61 percent; the bottom 50 percent provide 3 percent. So the tax makes a substantial majority complacent about government's growth.

Increasingly, the income tax is codified envy. A VAT is the political class' recourse when the resources of the minority that is targeted by the envious are insufficient to finance ravenous government.

Because a VAT would shred Barack Obama's promise not to increase any tax on households with incomes less than $250,000, he must hope the deficit reduction commission he created will provide cover for his apostasy. But 14 of the commission's 18 members must endorse any recommendation. Good luck finding two votes for a VAT among the six Republican members -- Sens. Judd Gregg, Tom Coburn and Michael Crapo, and Reps. Paul Ryan, Dave Camp and Jeb Hensarling.

And wait until the political class' most imperious masters, the elderly, are heard from. When they worked they paid taxes on their incomes; retired, they will resent -- they are virtuosos of resentment -- being taxed when they spend their savings.

Because a VAT potentially taxes everything, it would be riddled with exemptions. This is because it maximizes the political class' opportunities for showing favoritism -- by, for example, exempting certain "green" goods. It also widens that class' scope for the pleasure of being bossy. For example, it could reduce a VAT's regressiveness -- like rain, a VAT falls equally on the rich and the poor, but the poor devote a larger portion of their income to consumption -- by exempting most foods but not those that the nanny state disapproves: "Put down that sugary soda and step away from the vending machine!"

Money is time made tangible -- the time invested in the earning of it. Taxation is the confiscation of the earner's time. Although some taxation is necessary, all taxation diminishes freedom. Adding a VAT without subtracting the income tax would constrict Americans' freedom much more than the health care legislation does. Because the 16th Amendment will not be repealed, adoption of a VAT would proclaim the impossibility of serious spending reductions, and hence would be the obituary for the Founders' vision of limited government.

Nuclear Posturing

Nuclear Posturing, Obama-Style
Charles Krauthammer
Friday, April 09, 2010

WASHINGTON -- Nuclear doctrine consists of thinking the unthinkable. It involves making threats and promising retaliation that is cruel and destructive beyond imagining. But it has its purpose: to prevent war in the first place.

During the Cold War, we let the Russians know that if they dared use their huge conventional military advantage and invaded Western Europe, they risked massive U.S. nuclear retaliation. Goodbye Moscow.

Was this credible? Would we have done it? Who knows? No one's ever been there. A nuclear posture is just that -- a declaratory policy designed to make the other guy think twice.

Our policies did. The result was called deterrence. For half a century, it held. The Soviets never invaded. We never used nukes. That's why nuclear doctrine is important.

The Obama administration has just issued a new one that "includes significant changes to the U.S. nuclear posture," said Defense Secretary Bob Gates. First among these involves the U.S. response to being attacked with biological or chemical weapons.

Under the old doctrine, supported by every president of both parties for decades, any aggressor ran the risk of a cataclysmic U.S. nuclear response that would leave the attacking nation a cinder and a memory.

Again: Credible? Doable? No one knows. But the threat was very effective.

Under President Obama's new policy, however, if the state that has just attacked us with biological or chemical weapons is "in compliance with the Non-Proliferation Treaty (NPT)," explained Gates, then "the U.S. pledges not to use or threaten to use nuclear weapons against it."

Imagine the scenario: Hundreds of thousands are lying dead in the streets of Boston after a massive anthrax or nerve gas attack. The president immediately calls in the lawyers to determine whether the attacking state is in compliance with the NPT. If it turns out that the attacker is up-to-date with its latest IAEA inspections, well, it gets immunity from nuclear retaliation. (Our response is then restricted to bullets, bombs and other conventional munitions.)

However, if the lawyers tell the president that the attacking state is NPT noncompliant, we are free to blow the bastards to nuclear kingdom come.

This is quite insane. It's like saying that if a terrorist deliberately uses his car to mow down a hundred people waiting at a bus stop, the decision as to whether he gets (a) hanged or (b) 100 hours of community service hinges entirely on whether his car had passed emissions inspections.

Apart from being morally bizarre, the Obama policy is strategically loopy. Does anyone believe that North Korea or Iran will be more persuaded to abjure nuclear weapons because they could then carry out a biological or chemical attack on the U.S. without fear of nuclear retaliation?

The naivete is stunning. Similarly the Obama pledge to forswear development of any new nuclear warheads, indeed, to permit no replacement of aging nuclear components without the authorization of the president himself. This under the theory that our moral example will move other countries to eschew nukes.

On the contrary. The last quarter-century -- the time of greatest superpower nuclear arms reduction -- is precisely when Iran and North Korea went hellbent into the development of nuclear weapons.

It gets worse. The administration's Nuclear Posture Review declares U.S. determination to "continue to reduce the role of nuclear weapons in deterring non-nuclear attacks." The ultimate aim is to get to a blanket doctrine of no first use.

This is deeply worrying to many small nations who for half a century relied on the extended U.S. nuclear umbrella to keep them from being attacked or overrun by far more powerful neighbors. When smaller allies see the United States determined to move inexorably away from that posture -- and for them it's not posture, but existential protection -- what are they to think?

Fend for yourself. Get yourself your own WMDs. Go nuclear if you have to. Do you imagine they are not thinking that in the Persian Gulf?

This administration seems to believe that by restricting retaliatory threats and by downplaying our reliance on nuclear weapons, it is discouraging proliferation.

But the opposite is true. Since World War II, smaller countries have agreed to forgo the acquisition of deterrent forces -- nuclear, biological and chemical -- precisely because they placed their trust in the firmness, power and reliability of the American deterrent.

Seeing America retreat, they will rethink. And some will arm. There is no greater spur to hyper-proliferation than the furling of the American nuclear umbrella.