WASHINGTON, D.C. – Montana’s Congressman, Denny Rehberg, today signed a letter with colleagues urging leaders of the President’s National Commission on Fiscal Responsibility and Reform to avoid a European-style Value Added Tax (VAT).  In the letter, Rehberg joined 153 of his colleagues to instead support alternative solutions to reduce government spending.

“This VAT is little more than a national sales tax on virtually all economic activity,” warned Rehberg, a member of the House Appropriations Committee.  “We’ve seen what these taxes did to Europe’s economy.  No one looks at a situation like the one in Greece and thinks that’s the direction we should be heading, yet that’s exactly where Washington, D.C. is taking us.”

Rehberg advocates reducing the deficit and paying down the debt by cutting out of control spending.  Higher taxes have historically crippled economic recovery by dousing demand and costing jobs.

“The bottom line is that America has never, and will never, be able to tax its way to prosperity,” said Rehberg in the letter.  “Our prosperity has always come from entrepreneurs, small-business owners, and hard working Americans pursuing their dreams.

The Letter Is Below:

Dear Chairman Bowles and Chairman Simpson:

As leaders of the President’s National Commission on Fiscal Responsibility and Reform you know that America’s fiscal house is in disrepair.  Without serious reforms it is very possible that Europe’s debt crisis will become America’s debt crisis. 

Therefore, we urge the Commission to focus on spending reduction, not tax increases.  We must avoid the mistake Europe made when it tried to pay for bigger government with new taxes—namely the Value Added Tax (VAT). 

In a depressed economy, the number one priority of government should be to stimulate job growth.  With unemployment at nearly 10 percent, Americans cannot afford the burden of a new job killing tax.  But this is exactly what a VAT will do.  A VAT will increase the cost of goods and services for all Americans, including the lower and middle classes.  It will tax our manufacturers, sending even more jobs overseas.  And, it will decrease consumption, which will deepen the recession and suppress entrepreneurialism.  This is exactly what has happened in Europe where increased government spending and taxation has led to consistently high unemployment and suppressed economic activity.

The VAT did not save Greece.  During the decade preceding the global financial crisis that started in 2008, Greece's government borrowed heavily from abroad to fund its burgeoning government programs.  Between 2001 and 2008, Greece's reported budget deficits averaged 5 percent per year.  In 2009, the budget deficit was 13.6 percent of GDP.  These deficits grew in spite of Greece’s 19 percent VAT rate.  The result of increased government spending and taxation in Greece has been a consistently high unemployment rate of nearly 10 percent and a bankrupt government.    

Unfortunately, America is making the same mistake that countries like Greece made.  In the heart of a debt crisis, Congress passed yet another entitlement program with no way to pay for it, and government spending continues to grow at alarming rates.  Our national debt grew from $9 trillion to $12 trillion since 2008.  In FY2009, the deficit was almost 10 percent of GDP.  It is not hard to see how in just a few short years we could experience a crisis nearly identical to Greece.

Disappointingly, some in Washington still believe that we must grow our government and the tax base to fix the debt crisis.  Recently the President’s own advisers have suggested that a VAT could be good for America.  Not even a 19 percent VAT was able to save Greece from a full-blown debt crisis.  We should not expect different results in America.

The bottom line is that America has never and will never be able to tax its way to prosperity.  Our prosperity has always come from entrepreneurs, small-business owners, and hard working Americans working freely to pursue their dreams.  

Adding a VAT to an overly burdensome tax code will destroy American jobs and crush American innovation.  We urge the Commission to consider other ways to rein in out of control government spending.

Sincerely,