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Will Obama Institute A VAT Tax?

  1. profile image0
    Poppa Bluesposted 8 years ago

    Certainly something is going to have to be done to support all this ridiculous spending! If this does come about, it will be the beginning of the end of the American dream!

    Thanks to the liberal socialist democrats and their misguided beliefs for society to "progress"!

    U.S., China Pledge To Address Economic Imbalances
    by John Ydstie

    November 17, 2009

    With a mix of Chinese and U.S. flags behind them, President Obama and his Chinese counterpart, Hu Jintao, accentuated the positive at their post-summit news conference Tuesday in Beijing.

    The two leaders emphasized the importance of the U.S.-China relationship and pledged to cooperate on a long list of issues � from trade to nuclear proliferation. On the big economic issue, the two leaders agreed again to do something about the imbalances that helped bring about the financial crisis. But change won't come easily.

    In the run-up to the financial crisis, the U.S. and China reinforced each other's bad habits: Americans happily consumed more than they could afford using borrowed money, much of it from China. Meanwhile, China gladly kept Americans shopping by exporting products at artificially low prices.

    After his meeting with Hu on Tuesday, Obama said the leaders had recommitted to taking a more sustainable approach to growth, one in which "America saves more, spends less, reduces our long-term debt, and where China makes adjustments across a broad range of policies to rebalance its economy and spur domestic demand."

    But how likely is it that the two countries will be able to make good on those pledges?

    Letting China's Currency Get Stronger

    First, let us take a look at what China needs to do: Focus more on selling to its own people and less on exporting to the rest of the world.

    The first step in that process, says Ken Rogoff, a former chief economist at the International Monetary Fund, is for China to take its thumb off the currency scale. Virtually the whole world believes that China's currency, the yuan, is significantly undervalued.

    "They are flirting with allowing their currency to appreciate a little faster, but they're very nervous about doing anything to throw off the export machine," Rogoff says.

    If its currency strengthened, China's exports wouldn't sell as well, the country's growth would slow and unemployment would rise. To pick up the slack, China's government needs to give households the means to consume more, says economist Andy Xie, a former analyst with Morgan Stanley. Right now, he says, Chinese workers are intensely focused on saving for retirement, partly as a result of China's one-child policy.

    "You have two parents and four grandparents and one kid, and obviously all these people are not going to depend on this kid for their retirement," Xie says. "So they're all preparing for themselves."

    With Chinese households stuffing their mattresses, there is not much money left for shopping. The government has taken some steps, boosting pensions and health care. But, Xie says, the government needs to do more. He suggests taking government-owned shares in Chinese companies and giving them to individuals. That could boost consumption and make the Chinese economy less dependent on exports.

    Xie acknowledges this would be politically challenging.

    Getting Americans To Keep On Saving

    Rogoff says the U.S. also has hurdles in getting Americans to save more and spend less.

    "It is massively difficult politically," he says. "We like to shop; we like to consume."

    Fear of unemployment and declining wealth has recently prompted Americans to save more, but Rogoff, now a professor at Harvard University, says he thinks we need financial reforms to cement the progress.

    "We have to prevent the situation where consumers are going nuts the way they did in the run-up to the financial crisis," Rogoff says.

    That means discouraging risky lending by banks and eliminating things like no-money-down mortgages and government subsidies that supercharged the housing market. Rogoff is doubtful there is the political will to do what needs to be done.

    As for the other step in U.S. rebalancing � reining in our massive budget deficits � Rogoff says that may be even harder because it will require tax increases.

    "It's deeply embedded in the American psyche now that we don't need to pay taxes, and yet we expect all these government services," he says.

    And, Rogoff says, raising taxes only on the rich won't balance the budget and live up to the commitment Obama repeated Tuesday. More likely, Rogoff says, a value-added tax or national sales tax would be needed. That would both rein in consumption and help balance the budget.

  2. profile image60
    C.J. Wrightposted 8 years ago

    He will have to try. His policies are unsustainable with out increasing revenues.

    1. profile image60
      C.J. Wrightposted 8 years agoin reply to this

      Actually, let me clarify. He will attempt to raise taxes. However I don't believe the VAT or NST will be the vehichle. These have legality issues.

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        Poppa Bluesposted 8 years agoin reply to this

        Since when has the President or congress for that matter cared about what the constitution says? It's hard to imagine both a tax on labor and a tax on consumption but if it does come to pass, there will be revolution!

        1. profile image60
          C.J. Wrightposted 8 years agoin reply to this

          I think its quite possible. I don't think his administration anticipated this much vocal disent. That being said, his administration may have lost its nerve to pull it off. I certainly believe congress has.  The trend does seem to indicate that the Fed Govn't is wanting to saddle the states with the bill on legacy entitlement programs via unfunded/under funded mandates. If they were able to pull off a VAT/NST they would undoubtedly have the states over a barrel because not only would they have forced the states to increase taxes on their people, they now have intercepted revenue streams.