The Republican Party’s European Tax Policy

When was the last time an American political leader of the Republican Party embraced a European economic policy? Or a European policy of any kind, for that matter?

It’s difficult to recall such an event, isn’t it? You might need to go all the way back to President Dwight Eisenhower’s support of the New Look strategy, a policy that marked the apex of Euro-American cooperation against the Soviet Union. Or perhaps you could point to the fall of the Soviet Union during the 1980s and early 1990s, an era when U.S. Republican Presidents Reagan and Bush collaborated closely with European leaders like Margaret Thatcher, Helmut Kohl, and Francois Mitterrand.

More recently, though, Republican Party politicians have expressed far less friendly sentiments towards their European colleagues. Presidential candidate Mitt Romney, for instance, sharply critiqued Greek economic policy throughout his campaign. And anti-European sentiment during George W. Bush’s invasion of Iraq peaked with the banishment of french fries from the cafeteria of the U.S. Capitol, and the introduction of “freedom fries” in their place.

So why are conservative Republican politicians now embracing a quintessential European tax policy? And what does their embrace tell us about today’s political climate in the United States?

From Kansas to Louisiana

The policy in question involves an increased reliance on sales taxes to finance government operations. Conservative governors Sam Brownback of Kansas and Bobby Jindal of Louisiana have both recently advocated for increases in sales taxes.

Republican politicians advocating for tax increases? At first glance, that would appear to contradict the traditional conservative orthodoxy against tax increases of any kind. Ever since Republican President George H.W. Bush famously abandoned his read my lips, no new taxes pledge over twenty years ago, Republican lobbyists have stood firm against any form of tax increase.

But today, Governors Brownback and Jindal are making a more subtle argument. They are not simply advocating for increases in sales taxes; they are concurrently advocating for reductions in (or even an outright elimination of) income taxes. Thus, they are defining their proposals as modifications of existing systems of taxation, as opposed to increases in rates of taxation.

A more balanced system of taxation, one that more equally distributes taxes across earnings (i.e. income) and consumption (i.e. sales), strikes Brownback and Jindal as an improvement over the status quo. Unsurprisingly, however, neither one has acknowledged that such a modification would bring the system of American taxation into far closer alignment with the existing European system.

Value Added Taxes

Strictly speaking, the European tax on sales transactions isn’t really a “sales tax” in the American sense of the phrase. Instead, it is a tax on the incremental value added by each party to the development and sale of a product or service.

Imagine that a European farmer sells a bucket of milk that is worth five euros to an artisanal cheese producer. Then imagine that the cheese producer transforms the milk into an eight euro package of cheese. If the cheese is then sold to a retail store for twelve euros, the European farmer would pay taxes on five euros of value, the producer on three euros of value, and the retailer on four euros of value.

Within an American system of sales taxation, the retailer would pay sales taxes on the entire twelve euro purchase. Under either system, though, taxes would be calculated on a basis of the value of sales, purchase, or transfer transactions, as opposed to a basis of income or profit levels.

But why is this debate emerging now? What trends are occurring in the American political climate that would empower conservative Republican politicians to embrace such policies?

Bowing To Reality

Reality … What A Concept! That was the title of a 1979 stand-up comedy album by the American actor Robin Williams. Nevertheless, it could just as easily serve as the description of the current state of affairs in American politics.

After all, the federal government’s cumulative budget deficit now stands at $16.5 trillion, and it continues to grow by more than $1 trillion each year. Such worrisome numbers, considered in tandem with President Obama’s resounding electoral victory, are persuading Republican lawmakers to seek compromise. That is why America avoided a federal government shut-down during the fiscal cliff negotiations on New Year’s Day, as well as during the subsequent debt ceiling debate of early 2013.

Some commentators believe that demographic trends in American society are pushing the political parties towards the center too. An agreement regarding America’s illegal immigrant population is expected to occur within the next six months, in contrast to the outcome of a similar but ill-fated bipartisan policy initiative by the Bush administration in 2006.

An immigration reform bill that offers a path to citizenship to individuals who have entered the United States illegally? And a system of taxation that emphasizes the very features that have been implemented throughout the European Union? These may appear to be highly unusual positions by Republican politicians, and yet they may have been necessitated by the unique realities of the contemporary era.