James Pethokoukis

Politics and policy from inside Washington

Confused taxpayers are happy taxpayers?

May 28, 2009

Bob Williams over at the Tax Policy Center takes note of recent research that suggests “taxes don’t always have to depress demand. People may not react to tax changes they don’t perceive. If the price change isn’t obvious, homo economicus goes on merrily consuming the same as before.”

He points to research that found a) toll roads with electronic toll payment systems take in more revenue; and  b) a drop in demand when sales taxes were made clear to consumers before purchase.  Now one could interpret this as an argument for a value-added tax. In general, I think it makes a lot of sense to tax consumption over investment. But the interest in Washington is in a VAT that would be in addition, more or less, to our current income and investment taxes — not a replacement.

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