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I have been on record numerous times as being very strongly against the idea of implementing a Value Added Tax (VAT) both here and here. So my initial reaction to Indiana Governor Mitch Daniels support for a VAT was one of shock. (I’m not going to lie, I threw up a little in my mouth). I have been a big fan of the Governor as he has helped navigate his state through the recession and budget deficits better than arguably any other Governor in the nation. So after my initial nausea subsided, I hoped that he had meant to say that he wanted a VAT as a total or near total replacement of the current federal tax system.
Unfortunately after reading the Politico article, it seems to me that his tax swap idea does not go far enough to ease fears of fiscal conservatives that this will still result in higher taxes and help grow the size of government even more. As I pointed out in a previous op-ed, “Even if income tax or corporate tax rates are lowered slightly to offset some of a VAT’s burden, this tax swap is a Trojan horse that will make raising taxes far easier in the future.”
If a VAT is ever considered it should only be done as a way to swap out all taxes on income (both personal and corporate) as well as all taxes on investment. Even then, I would be very leery to support such a reform without repealing the 16th amendment which allowed for an income tax to be implemented in the first place.
I agree with one key point that Bruno Behrend made in his earlier post, “The current tax system is beyond reform and/or repair.” Whether this means eliminating all, or nearly all, deductions and reducing the income tax to one or two lower income tax rates, or by switching to a consumption based tax system (with repeal of the 16th amendment), our country is in dire need of fundamental tax reform.
There is no question that a national sales tax or a simpler, flatter income tax are both massive improvements over the 65,000 pages of tax code and regulations we currently have. Unfortunately, tax reform advocates are engaged in an idealistic power struggle over FairTax vs. Flat Tax instead of uniting to convince the public that our current tax code is pilfering jobs from America, punishing workers, and pushing economic growth overseas.
If Gov. Daniels wanted to get a national debate on reforming our federal tax code rolling, he may have helped do that. Despite his stellar fiscal conservative record as Governor, any Presidential hopes he may have had are now officially dead in the water in the minds of fiscal conservatives unless his weak stance on the VAT changes.