The new Washington Consensus: taxes, taxes and more taxes

December 29, 2009

This depressing WSJ article outlines some possible solutions to America’s long-term fiscal problems:

1) Don’t keep fixing the AMT

2) Let all the 2001 and 2003 tax cuts expire

3) Add a VAT overlay on top of current system

4) Tax Wall Street trading

5) Put an expiration date on business tax cuts and credits

6) Create a commission, like the Greenspan Commission on Social Security, that would cut spending and … wait for it … raise taxes.

This article perfectly encapsulates Washington thinking that fundamental change in how Washington spends America’s tax money is really impossible. So raise taxes through the roof. One more reason to believe a low-growth New Normal is here.

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About: WSJ & VAT

It would be wrong, let alone politically impossible, to add a U.S. VAT on top of existing taxes. When Japan instituted its VAT, to assure adoption, it was done along with an overall tax reduction.

But, as a revenue-neutral substitute for the corporate income tax, the VAT in itself would have positive implications for the U.S. economy because it is border-adjustable, i.e., imports would be subject to the tax and exports would subtract the tax. Thus, U.S. corporations and workers would be in a more competitive position at home and abroad. Furthermore, eliminating the corporate income tax would do away with the double-taxation of dividends; the U.S. would become a magnet for foreign investment, and U.S. multinationals would no longer have an incentive to park funds abroad in lower-taxed countries.

Posted by Steve Abramson | Report as abusive