Is a value-added tax around the corner?

The biggest question facing all of us right now - not to mention our children, their children and all those yet unborn - is how in the world we're going to get out from under the mountains of debt that we have piled up over the years. We owe, as a nation, somewhere in the neighborhood of $11 trillion, and that is a conservative figure. Using generally accepted accounting standards that consider our gigantic unfunded liabilities, the national debt is several times that. We can no longer count on the people of other nations to lend us money that they now know will never be repaid in other than nominal ways, i.e., with vastly cheapened dollars.

Central bankers are flooding the world with new paper currency. Even the famously frugal Swiss have increased their money supply by 30 percent in the last few months. The idea, of course, is to prevent deflation. The conceit, born out of desperation, is that Federal Reserve Chairman Ben Bernanke and his counterparts in other nations can inflate (cheapen their currencies) in a controlled manner, preventing hyperinflation (the total ruination of their currencies). My strong suspicion is that massive increases in the money supply make ruinous inflation unavoidable in the long term, though so far in the current credit meltdown, price deflation is the overwhelming reality. Oh, excepting government, that is.

Since it's difficult to believe that the federal government can actually operate with a $3.6 trillion budget and a $2 trillion deficit, we see our nervous political class entertaining something so drastic, it has been off the table in this country for many years - even though more than a hundred other governments use it to pay for their ever-growing spending. I'm talking about a value-added tax, commonly referred to as a VAT. The Washington Post reported Wednesday that tax experts at a White House meeting on budget problems "pleaded with Treasury Secretary Timothy F. Geithner to consider a VAT."

A VAT taxes the transfer of goods and services every step of the way, from their manufacture or initiation to their final purchase. From a government's point of view, a VAT is a wonderful tax because, as the Post story reports, "producers, wholesalers and retailers are each required to record their transactions and pay a portion of the VAT." So, it's hard to dodge. It punishes spending rather than saving, which would represent a U-turn for the American economy, which has been rewarding spending and penalizing saving for many years.

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