Roger Altman: Expect Congress seriously to consider a value-added tax

Posted by Kendall Harmon

Only five months after Inauguration Day, the focus of Washington's economic and domestic policy is already shifting. This reflects the emergence of much larger budget deficits than anyone expected. Indeed, federal deficits may average a stunning $1 trillion annually over the next 10 years. This worsened outlook is stirring unease on Main Street and beginning to reorder priorities for President Barack Obama and the Democratic congressional leadership. By 2010, reducing the deficit will become their primary focus.

Why has the deficit outlook changed? Two main reasons: The burst of spending in recent years and the growing likelihood of a weak economic recovery. The latter would mean considerably lower federal revenues, the compiling of more interest on our growing debt, and thus higher deficits. Yes, the President's Council of Economic Advisors is still forecasting a traditional cyclical recovery -- i.e., real growth of 3.2% next year and 4% in 2011. But the latest data suggests that we're on a much slower path. Probably along the lines of the most recent Goldman Sachs and International Monetary Fund forecasts, whose growth rates average about 2% for 2010-2011.

A speedy recovery is highly unlikely given the financial condition of American households, whose spending represents 70% of GDP.

Read it all.

Filed under: * Economics, PoliticsEconomyTaxesThe U.S. GovernmentBudgetThe National DeficitPolitics in GeneralHouse of RepresentativesSenate

7 Comments
Posted July 1, 2009 at 12:03 am [Printer Friendly] [Print w/ comments]



1. Jeffersonian wrote:

So is that no-tax-increase-if-you-make-less-than-250k pledge no longer operative?

July 1, 12:12 am | [comment link]
2. kwanlu wrote:

“So is that no-tax-increase-if-you-make-less-than-250k pledge no longer operative? “
Absolutely not! It’s not operative if you make less than 250K. It’s only operative if you decide to spend any of that salary.

July 1, 12:18 am | [comment link]
3. Katherine wrote:

Jeffersonian, like his other promises, it had an expiration date he didn’t mention.

July 1, 12:18 am | [comment link]
4. Bart Hall (Kansas, USA) wrote:

A speedy recovery is highly unlikely given the financial condition of American households, whose spending represents 70% of GDP.

Correction: represent-ED 70% of GDP, past-tense. That figure was an aberrant departure from a much longer-term average of 60 to 64% ... back when people actually had to spend real money, rather than use their house as an endless ATM.

A return to the average mid-point of household spending (62%) will necessitate a permanent decrease in consumer purchases by about 11% from 2008 levels. Adding a VAT merely reduces the amount of those purchases actually spent on goods and services, by 10% in this case. That will tend to reduce actually household spending on the non-taxed component by another 6% or so, to a net of 56%—fully 20% below 2008 levels.

The impact on the retail sector will be profoundly negative, soon thereafter trashing commercial real estate. The VAT will also be in direct competition with increasing savings and debt retirement, both of which are essential before new growth can be sustainable. Healthy savings levels are around 10% and healthy household debt levels are about half their current values. We have a long way to go, and the VAT will make it much longer.

My inner cynic expects the tax will be passed in early 2010, to take effect in 2011.  People will spend like fools to avoid the tax, generating a couple of quarters of nice numbers for the Donks to take into the mid-term elections.

July 1, 6:57 am | [comment link]
5. AnglicanFirst wrote:

Defense and space programs have actually contibuted advances in technology which have stimulated our economy and hence provided a ‘pay back’ to the American people.  Witness radar and jet engines developed during World War II and weather and communication satellites developed since the 1960s.

The Administration’s and Congress’s programs to reduce carbon emissions, which haven’t been proven to be a desperate or even impending problem, and to provide universal health care, using theories that have failed in Great Britain and Canada, will add little to the productivity of our country and will most likely stifle a recovery from the current depression or produce a long-term downturn in our country’s economy.

Its a little liike asking/telling everyone with a house having a hose with a floor-plan greater than 2000 square feet to burn their houses down and buy a house with a 1000 sq

July 1, 9:35 am | [comment link]
6. AnglicanFirst wrote:

Continuation of comment #5.  Somehow while ‘touch typing’ I hit the wrong keys and ‘sent my comment prematurely.
==================================================================
Continuing and adding,
‘Its a little liike asking/telling everyone with a house having a house with a floor-plan greater than 2000 square feet to burn their houses down and buy a house with a 1000 square foot or less floor-plan so that everyone shall have the same tiny and probably inadequate house.”

July 1, 9:40 am | [comment link]
7. Branford wrote:

But AnglicanFirst, then everything will be “fair” if we all have the same size house!

July 1, 11:24 am | [comment link]
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