Europe’s Record Shows VAT is No Solution to Debt

Kathryn Nix / April 15, 2010

The United States is on an unsustainable financial course, and everyone seems to know it.  As Heritage highlighted in our recently published 2010 Budget Chart Book, if nothing is done, federal obligations will reach heights that even enormous tax increases will be unable to reverse.  In 2010, the federal budget deficit will be 11 percent of GDP, and the federal debt is on course to continue to skyrocket.   Interest payments on the debt in one month alone in 2009 exceeded yearly expenditures on several federal departments, including the Department of Labor and the Department of Agriculture.  And President Obama’s deficit will only magnify the impending crisis, creating an estimated budget deficit at the unprecedented level of 7.8 percent.

Federal Reserve Chairman Ben Bernanke echoed these concerns in a testimony yesterday before the Joint Economic Committee.  Bernanke predicted that under current law, excluding improbable assumptions it makes about federal activity in years to come, the federal debt would reach 100 percent of GDP by the end of 2020.

Reining in the federal government’s irresponsible spending is imperative not only to the stability and success of the United States, but also to the future of its economic prosperity.  Said Bernanke, “maintaining the confidence of the public and financial markets requires that policymakers move decisively to set the federal budget on a trajectory toward sustainable fiscal balance. A credible plan for fiscal sustainability could yield substantial near-term benefits in terms of lower long-term interest rates and increased consumer and business confidence.” (more…)