by Mitch Kokai
Senior Political Analyst, John Locke Foundation
The VAT would be adopted only if it is accompanied by “the simultaneous repeal of the Sixteenth Amendment, which established the federal income tax,” the platform states. A Republican-controlled Congress passed that amendment in 1909, and the states ratified it in 1913. The tax was aimed squarely at the ultra-wealthy, targeting the top 1% of wage earners.
Removal of the 99-year-old tax amendment is so unlikely that the platform plank seems facetious. As for the VAT, perhaps it was inserted in the document for yucks, too. A mere two years ago, “VAT” was an obscenity in GOP circles. The Republican National Committee, which produced the 2012 platform in 2010, vigorously attacked the value-added tax after Obama advisor Paul Volcker said that a VAT or a carbon tax might be needed to narrow the budget deficit. The RNC assumed that the Democrats would add the regressive VAT to existing taxes and consequently soak the middle class.
McTague also highlights other pieces of the GOP platform that are more likely to get a hearing in 2013.
If the GOP unseats President Obama and takes the Senate, investors should consider the positive ramifications of the platform’s other tax planks, which are more bullish than a Labor Day barbecue. The pledges include maintenance of the Bush tax cuts while the tax code is being overhauled, and a 20% across-the-board reduction in marginal tax rates. All this would be implemented in a revenue-neutral manner — meaning paid for by eliminating tax write-offs. A victorious GOP also would seek to eliminate taxes on dividends, interest, and capital gains for lower- and middle-income taxpayers. The idea is to provide these wage earners with an incentive to save, and perhaps even venture back into the stock and bond markets, where their absence has reduced liquidity. The GOP also promises to repeal the federal estate tax and the alternative minimum tax, both obstacles, in its view, to business formation and gung-ho capitalism.
Additionally, the Republican platform proposes a reduction of the corporate tax rate to make the U.S. a more attractive domicile; a permanent R&D tax credit; repeal of the corporate alternative minimum tax; and a switch to a territorial system of corporate taxation, so profits taxed abroad can enter the U.S. without additional levies. These changes would bolster corporate earnings and, theoretically, stock prices.