With all the GOP candidates fussing over Mitt Romney and his track-record at Bain Capital, does it not strike anyone as odd that none of them are putting the screws to the Massachusetts Republican in debates over his unwillingness to rule out a European-style Value Added Tax (VAT)?
While Romney says he doesn’t want to go down the path of European socialism, in a recent Wall Street Journal he did not rule it out and even suggested that it might be an option.
The lack of clarity on this subject is ominous given that a VAT is probably the only way to come close to funding the federal government at its current levels of outrageous spending. Since none of the other candidates are forcefully calling Romney out on the VAT issue, I suspect an eventual Republican betrayal on establishing a VAT tax is likely.
As a reminder, a VAT would tax goods at ALL layers of production, from their origin as raw material to manufacture to final product.
Rising levels of federal deficit spending create momentum toward the VAT “solution.” Debt-addicted central governments in Europe and the United States have no intention of dealing with the true causes of the financial crisis.
To get to a VAT from here, all the political class needs to do is wait around for a “responsible” Republican to come around and act as a tax collector for the welfare state. My point is the Big Government people have already established the new unsustainable spending baselines. All they need now is a gullible Republican to come in and “do something.” Paralysis and dysfunction are their friends, because it will lead to a crisis that may well result in the imposition of the VAT tax.
Big Spenders Know How
to Put the Screws to the Taxpayers
Meanwhile, I have not heard GOP candidates other than Ron Paul talk about what I will call the “Iceland Option.” Let me explain.
The island nation of Iceland was not spared from the global financial crisis in 2007 and 2008. Its private banking sector was flying high, as the high yields it offered to foreign depositors led to a major influx of capital. When the financial crisis ensued, the process sharply reversed, and Iceland’s private banks essentially collapsed as capital was sucked out of the country during the race back into the “safety” of U.S. dollars.
Instead of bank bailouts, which was what Iceland’s political class wanted and what was encouraged by other European governments, Iceland’s president, Olafur Ragnar Grimsson, went against his own parliament and the prime minister and vetoed the proposed legislation. This led to a referendum that allowed the people to decide their fate. (The people of Iceland voted on a referendum twice, and each time they voted ‘NO’ to bank bailouts.)
The people of Iceland chose to let the private banks and their depositors suffer from their self-imposed problems. This decision by the people was extremely unpopular within Europe and the Icelandic political class. (Cronies want their corporate welfare.)
What is especially impressive is this: in Iceland, the president traditionally plays a “ceremonial role.” The Prime Minister holds executive power. President Olafur is the first and only president to stand up against parliament, show some backbone, and use the veto. “…now Iceland is coming out of this crisis and establishing recovery earlier and more effectively than other European countries,” according to Olafur in a CBC Radio interview.
Where is This Conversation?
Iceland vs. Ireland as a Solution to Insolvency
Around the same time, the nation of Ireland suffered its own financial crisis, but they chose the standard Big Government path of bank bailouts, and the mortgaging of their children’s future with exploding public debt.
In an Irish Independent article, think tank Bruegel noted Iceland has fared better than Ireland by letting banks fail. “The experience with the collapse of the gigantic Icelandic banking system suggests that letting banks fail when they had a faulty business model can be the right choice… The banking sector suffered meltdown in Iceland and foreign lenders to banks suffered massive losses. Yet, the crisis impact was much more benign in Iceland,” says the Bruegel report.
More to the point, this small country of 320,000 people went toe-to-toe with a major European bully… In the interview, President Olafur described the warnings, threats, and pressure he faced for allowing the people to vote in the referenda and the possible consequences of both NO votes:
In other words, fear tactics were heavily used to get Iceland to give up its sovereignty and capitulate. “Everyone was telling me that was wrong… that the financial markets should be supreme in confrontation of the democratic will of the people,” said Olafur.
But just two years later, Reuters reported the government was back in the international markets and sold $1 billion in five-year bonds for about five percent! According to the report, “… the order book was two times oversubscribed, with the majority of the bonds purchased by U.S. and European investors.” So much for the threats that Iceland would never get another loan!
Global Deadbeats Are a Powerful Insidious Lobby
British and Dutch citizens, attracted by those high interest rates, deposited a lot of money with the Icelandic banks. When the banks failed these depositors lost money, too. Britain and the Netherlands were outraged (even though they allowed the Icelandic banks to open shop in their countries) and demanded the people of Iceland be “formally responsible for the debt of the private Icelandic banks.”
The U.K. pushed the envelope and exercised extraordinary force against Iceland and British Prime Minister Gordon Brown:
In the CBC Radio interview, the reporter asked, “Why didn’t you sign the bill to bailout the banks?” President Olafur responded, “… it would be contrary to the fundamental principles of the free market.”
So here is my point as it relates to the VAT: Deficit spending pressures are building to a breaking point here in the U.S. The financial elite and foreign creditors may eventually attempt to force a VAT tax on America to shore up its finances. It could happen when the next U.S. funding crisis hits.
Now is the time to push Romney to renounce the VAT tax and offer a plan for real spending cuts before he sews up the nomination. Send the Romney campaign a polite but firm email – or place a phone call – and demand Romney go public with his position on a VAT tax. Specifically ask if he is willing to rule out a VAT tax as a solution to the government’s growing funding shortfalls. Send to [email protected] or call his campaign headquarters at 857-288-3500.