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Friday, December 16, 2011

Gingrich Supported a Value-Added Tax

Our chapter on economic policy describes various kinds of taxes.  One tax in wide use in Europe -- but not the United States -- is a "value-added tax" (VAT) a consumption that applies to each stage of production.  Though he has denounced VAT proposals in recent years, Newt Gingrich once flirted with the idea.

On November 7, 1987, AP reported:
Rep. Newt Gingrich (R-Ga.) said Thursday that he intends to propose a radical reform of the Social Security system in which government checks would gradually give way to private retirement accounts for most retirees.
A new trust fund would be established to raise all senior citizens above the poverty level, to be financed by a "value added tax" described as a "simple across-the-board sales tax."

American exports would be exempt from the tax, a step designed to help reduce the massive U.S. trade deficit.

Current Social Security retirees would continue to receive their benefits, although those living under the poverty level would receive supplemental aid. Retirees would receive a one-time increase in Social Security payments to offset the money they would lose through the new sales tax.
Here are remarks he distributed on November 6, 1987:
In order to replace the FICA tax and finance the new anti-poverty retirement fund, we would adopt a "Value Added Tax." This VAT would be a simple across-the board sales tax designed to raise the amount currently raised by the FICA and the amount necessary to meet the poverty level requirements for our poorer grandparents. By keeping the  VAT simple we meet the main objection of small businesses who fear the complexity of European VATs. By keeping the VAT off budget and dedicated to these trust funds we meet the major worry of conservatives who see it as a relatively easy tax for liberals to increase in the future. Defining the VAT as our new Social Security tax will keep it dedicated and narrow in scope.
A few weeks later, he reiterated the point on the House floor (Congressional Record, January 6, 1987):
By shifting the current Social Security payroll tax, which is an antijobs tax applying only to American goods, we would create a pro-American jobs policy that would help our trade deficit by encouraging American exports and discouraging imports; by replacing the FICA current tax with a value-added tax which could be applied to imports and could be rebated on exports.
Soon, however, he stopped talking about the idea.