Cassidy Takes Another Shot in the Dark and Lands on VAT Proposal That Would Raise Taxes on Everyday Items for Louisianians
BATON ROUGE — Congressman Bill Cassidy has to date refused to answer definitively whether he backs a flat tax scheme — but at a 2010 town hall in Livingston Parish the congressman did endorse a Value Added Tax (VAT), a European-style plan that would make goods more expensive for Louisiana families.
“Congressman Cassidy has declined to clarify his position on a flat tax, but he wasn’t always so shy about his opinions on tax policy,” said Stephen Handwerk, executive director of the Louisiana Democratic Party. “Just a few years ago, Congressman Cassidy publicly backed a Value Added Tax, which is like a sales tax on steroids. Congressman Cassidy wants us to embrace the tax policies of countries like Greece that would increase the tax burden on middle-class families, while slashing taxes for millionaires and billionaires.”
A Value Added Tax is used throughout the European Union and is required for membership in the EU. If implemented in the U.S., a VAT would be levied on top of any state or local sales taxes that Louisianians already pay. Louisiana’s average combined sales tax rate of 8.89 percent ranks third-worst in the nation, according to the Tax Foundation.
“Apparently, Congressman Cassidy thinks middle-class families in Louisiana don’t pay enough in taxes,” said Handwerk. “He wants to slap another tax on top of Louisiana’s already-high sales tax rate, making everyday items like milk, bread and toothpaste more expensive for Louisiana families.”
Background
June 2013: Cassidy Signed Onto Ted Cruz’s Proposal To Replace The IRS With A Flat Tax, But Dodged The Question When Pressed
The Advocate: Cassidy Seems To Support A “Tear-It-Down-To-Build-It-Back-Up Approach” To Reforming The IRS. “So that begs the question of whether Cassidy supports a flat tax plan, like Cruz, or more fundamental IRS reforms. Cassidy seems to fall more under the tear-it-down-to-build-it-back-up approach. ‘If you strip them down and start over, you can strip out those portions which have pursued this political agenda and you can also strip it of its mandate to enforce Obamacare,’ Cassidy said in a sit-down interview.” [The Advocate, 6/9/13]
Cassidy Said His Support Of Abolishing The IRS Is “Not Predicated” On The Flat Tax And Would Make A Statement When He “Researched That More.” “Cassidy is more mum though on the flat tax issue though. ‘My statement is not predicated on that (flat tax) debate,’ Cassidy said. ‘I will make a statement on that when I’ve researched that more.’” [The Advocate, 6/9/13]
The Advocate Noted The “Awkward Aspect” Of The IRS Petition Being Funded By The Senate Conservatives Fund, Which Refused To Endorse Cassidy. In June 2013, The Advocate reported on Cassidy’s support of Senator Ted Cruz’s petition to abolish the IRS: “Then there’s the somewhat awkward aspect of Cruz’s petition being funded by the far-right Senate Conservatives Fund, which refuses to endorse Cassidy because the group does not consider him conservative enough. The group is considering backing retired Air Force Col. Rob Maness, of the New Orleans area, who also is planning to run against Landrieu.” [The Advocate, 6/9/13]
Ted Cruz Has Proposed Replacing The IRS With A Flat Tax
Ted Cruz Proposed A Flat Tax That Would Maintain Deductions For Charitable Contributions And A Home Mortgage. “We ought to abolish the IRS and instead move to a simple flat tax, where the average American can fill out our taxes on a postcard. Put down how much you earn. Put down a deduction for charitable contributions and home mortgage. And put down how much you owe.” [Washington Post, 6/3/12]
Ezra Klein Noted That Cruz’s Flat Tax Would Still Require A Revenue Agency To Audit And Enforce. “And Cruz’s flat tax is actually a bit more complicated than most. It includes deductions for mortgages and charitable contributions. What if everyone says they gave a million dollars to charity and own a huge home? Who’s going to check all that out? Well, some well-meaning flat-tax collection agents, I guess.” [Washington Post, 6/3/12]
Tax Experts Generally Agree That Flat Taxes Are Far More Regressive Than The Current Tax System And A Transition Would Be Far From “Simple”
A Flat Tax Would Be “Much More Regressive” Than The Current System, Increasing The Burden On Lower And Middle Class While Lowering It On The Upper Class. “A flat tax would be much more regressive than the current income tax. For one thing, it’s unlikely to include the refundable tax credits (like the EITC and child credit) that augment the earnings of low earners. It’s not impossible to add refundable credits, but I’ve never seen them in a flat tax proposal. As a result, poor people will pay a larger share of their income than they do at present. Middle-income people will also pay more. Moreover, spending falls as a share of income as income rises. Low-income people spend all their income or more. High-income people spend only a tiny fraction. A VAT or flat tax inevitably exempts most of the income of high-income people from tax. If it is going to raise the same amount of revenue as the current system, it must raise somebody else’s taxes. That would be low- and middle-income people.” [Len Burman, Tax Policy Center, 10/24/11]
Bruce Bartlett: “Even If One Agreed With The Ultimate Goal Of… [Raising] Taxes For Most Americans While Massively Cutting Them For The Ultra-Wealthy, Getting From Here To There Is Practically Impossible.” Furthermore, even if one agreed with the ultimate goal of having a single-rate tax system on a consumption base that would raise taxes for most Americans while massively cutting them for the ultra-wealthy, getting from here to there is practically impossible. For example, homeowners would suffer a 15 percent reduction in the value of their homes from withdrawal of the mortgage interest deduction even if they themselves paid no more taxes in total than they do now.” [Bruce Bartlett, Fiscal Times, 4/19/13]
Bruce Bartlett: “The Simplicity Of The Flat Tax Was Purely Superficial; The Postcard Return Meant Little And Having A Single Tax Rate Contributes Little To Simplicity Because The Rate Structure Has Little To Do With Tax Complexity.”“In short, the simplicity of the flat tax was purely superficial; the postcard return meant little and having a single tax rate contributes little to simplicity because the rate structure has little to do with tax complexity, which mainly relates to the tax base. Even if it were allowed to operate as intended – a political impossibility – the transition from our current system to the flat tax would be massively complex.” [Bruce Bartlett, Fiscal Times, 4/19/13]
Studies Of 2012 Presidential Candidate Flat Tax Proposals Found That They Reduced Revenue And Redistributed Income Toward The Wealthy
A Nonpartisan Study Of A Flat Tax Proposal Introduced By Rick Perry During The 2012 Election Found It Would Cost Almost One Trillion In Lost Revenue By 2015. “Presidential candidate Rick Perry’s tax plan would cost $995 billion in foregone federal revenues in 2015, based on current law, according to an independent study released on Monday. The Perry plan would slash projected revenue by roughly 27 percent, said the Tax Policy Center, a non-partisan think tank run by the Brookings Institution and the Urban Institute. The center’s study highlights how lucrative a 20 percent option flat tax would be for the wealthiest Americans.” [Reuters, 10/31/11]
A Tax Expert Said The Plan Was “Really Redistributing Income Greatly Toward The Top End.” “The after-tax income of the top 0.1 percent of taxpayers would go up 37 percent in 2015, under the plan, compared to current law, assuming the top-rate bracket will revert to 37.9 percent after 2012. But the after-tax income of the bottom 20 percent of taxpayers would rise by just 0.6 percent. The plan ‘is exactly what you would expect out of a tax like this,’ said Roberton Williams, a senior fellow at the center. He said, the plan is ‘really redistributing income greatly toward the top end.’” [Reuters, 10/31/11]
Value Added Tax Would Raise Prices, Increase Tax Evasion
The Value Added Tax Would Be Leveled On Top Of State Sales Taxes. “State Sales Taxes. Forty-six states levy a sales tax. A VAT at the federal level would be similar to state sales taxes. States would likely strongly resist any federal attempt to usurp their sales tax authority because they rely on sales tax revenue. A VAT at the federal level would likely force states to apply their sales taxes to a uniform set of goods and services. This would take from the states their ability to tailor their sales taxes to their desires and each state’s unique economy. States would also be forced to keep their rates within a narrow range. Because the VAT rate would likely begin relatively high, it would leave states little room to lower their sales tax rate to increase their competitiveness compared to other states. Further, a federal VAT would increase sales tax evasion, thus reducing state tax receipts, possibly significantly.” [Heritage Foundation, 12/21/10]
Heritage: “A VAT Would Undoubtedly Raise The Prices Of Everything That Consumers Buy.” “Some argue that a VAT would encourage saving because it would raise the prices of everything we buy. In this line of thinking, Americans would buy fewer goods and services and therefore save money that they formerly spent. A VAT would undoubtedly raise the prices of everything that consumers buy, but this would not increase the savings rate. The low savings rate is not the result of low prices, but of the current tax code that discourages savings by taxing returns of investment through taxes on capital gains, dividends, and interest. Adding a VAT would not change this. As long as the income tax continues to tax capital income and capital gains, the tax code will continue to discourage saving.” [Heritage Foundation,12/21/10]
Sen. Mary Landrieu Opposed A Value Added Tax In Congress
Sen. Mary Landrieu Voted To Express The Sense Of The Senate That A “Value Added Tax Is A Massive Tax Increase That Will Cripple Families On Fixed Income And Only Further Push Back America’s Economic Recovery.” [S. Amendment 3724, Vote #115, 4/15/10]
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