Last week former Federal Reserve Bank chairman Paul Volcker — the man who tamed rampant inflation and lackluster currency after the 1970s — seemed to endorse a value-added tax (VAT) resolve the federal government’s current fiscal chaos. This may be ironic, inasmuch as Volcker’s stewardship of the Fed is generally understood to be the period when consumer spending replaced business spending as the central force in economic growth. A VAT, it seems, would seriously hinder consumers' economic influence.

But, Volker is a White House economic advisor now, and there is a troubling degree of indecision among our economic and financial leadership as to whether consumers should have that central role in our economy, or whether that influence belongs to business, or even to some unwieldy amalgamation of businesses and government spending together. That much was signaled last year by the overemphasis on federal stimulus spending.

They do understand that they need more revenue to pay the debts they’re running up, and the VAT is the solution many financial “experts” have wanted for months, if not years.

VAT is a taxing method that extracts value from transactions, not assets. Like a sales tax, buyers pay it; but this tax is paid at each stage of the supply chain. Ideally, it would help manufacturers like metalcasters who create semi-finished or finished products and aim to export them — a specific federal objective — but only because overseas buyers would escape this new tax. Any exports still would have to compete globally on price, however, and that might be difficult if production costs are forced upward.

Manufacturers might suffer from a VAT because it would levy a charge on the cost of labor as well as goods, forcing up prices for manufactured goods and making it harder for the producer to compete on price.

Small and midsized businesses would have to assume the responsibilities (and costs) for complying with the VAT, so their costs would rise even as their revenues are threatened by consumer shock.

Property values would decline because transaction costs would rise, broadly undermining individuals’ net worth and restraining their ability to borrow and spend.

Overall, such a tax would be a blow to any domestic company aiming to profit from domestic buyers, because it would project an instant and widespread increase in the cost of everything. With upward pressure on raw material and energy costs, it’s likely that consumer spending would take a hit.

None of this proves that a VAT is a bad idea, only that it’s probably too much to ask of consumers who are just now showing some ability to fuel economic recovery. We already have to comply with the federal and other income taxes, state and local sales taxes, property taxes, and various consumption taxes.  We know, too, that federal officials want to institute carbon taxes of some type.

In the face of all these obligations, the taxpayer has two alternatives: do nothing, and hope to avoid taxes; or relocate to some place where the cost of living and doing business is less onerous.

The problem with virtually every economic proposal coming from the federal level lately is that all of them assume every circumstance is static – that their solutions will have exactly the results that they anticipate.  Tax more, and revenues will increase.

But, they’re wrong on two points: first, taxpayers will change their behavior, minimizing their exposure to penalties. And, second, the rest of the world will take advantage of the new regulations to create different, non-U.S. options for investment.

It would be even better for our financial overseers to make a clear choice about whether producers or consumers will drive economic activity — or indeed, economic growth — and focus their plans to let that happen.