James Pethokoukis

Over at the very fine TaxVox blog, Howard Gleckman writes a good explanatory piece on the current VAT debate. But this one  part really struck me:

Our current revenue system has reached its breaking point. To fix our terrible budget problem, we are going to have to cut spending. But we are also going to have to raise more revenue. And for the life of me, I don’t understand why we wouldn’t want to do so in the most efficient way possible. And that may lead us to a consumption tax in one form or another, Senate resolutions notwithstanding.

Me:  That was directed at conservative critics of the VAT.  Now from what I can tell, plenty of conservatives would have no problem with a VAT if it a) replaced the income tax and b) was designed to boost tax revenue by boosting economic growth.  And as far as a way of increasing the tax burden, the budget cuts are going to have to come first. Optimize government, try to quick the pace of GDP growth and then raise taxes if necessary.

Jonathan Chait over at TNR is strangely amazed that financial reform may happen:

What’s happening with financial reform right now is unlike anything that’s happened since I’ve been following American politics. Look at the fundamentals of the issue. This is a matter where a massive industry — one that accounts for close to half of all corporate profits — is adamantly opposed to new regulation. The merits of the issue are so mind-numbingly complex that even economists and policy wonks sound distinctly fuzzy on the details. Throw in a Republican Party that had pursued, with evident political success, a policy of total obstruction. I’d tell you this was a formula either for defeat or a toothless reform.

And yet a substantial reform now appears close to inevitable. It’s not a toothless reform — a set of derivative regulations more hawkish than anybody could have dreamed possible a couple weeks ago just passed through the Agriculture Committee. It’s one of those strange moments when the normal laws of politics have been suspended.

Me:  I am more amazed that given the magnitude of the financial crisis and the level of public rage, the banks weren’t broken up and turned into quasi-public utilities. But Wall Street can thank the White House for that. After passing the stimulus, it decided to focus on healthcare. Time passed, passions ebbed, and the lobbying effort cranked up. But the aftermath of the crisis (+Goldman) always made it likely that reform would pass.

OK, here is what President Obama said on CNBC to reporter John Harwood about a value-added tax:

HARWOOD: If reducing consumption is a good idea, could you see the potential for a value-added tax in this country?

OBAMA: You know, I know that there has been a lot of talk around town lately about the value-added tax. That is something that has worked for some countries. It’s something that would be novel for the United States. And before I start saying that this makes sense or that makes sense, I want a better picture of what our options are. And my first priority is to figure out how can we reduce wasteful spending so that, you know, we have a baseline of the core services that we need and the government should provide, and then we decide how do we pay for that. As opposed to figuring out how much money can we raise and then not have to make some tough choices on the spending side.

Me: Well,  I certainly agree with the general principle that we should optimize government and then see how much money we need.  But the important thing here is that a) despite Ways & Means Chair Sander Levin badmouthing the idea and b) 85 Senate votes against the idea, c) the White House won’t rule the idea out. Not all.   I also noticed that  the NYTimes has yet to run a correction on Hardwood’s piece that the WH has run the numbers on how much they think a 5 percent VAT would raise (nearly $300 billion a year). That, despite the WH saying they have not done so. It should also be noted that Obama seems to be qualifying his pledge to not raise middle-class taxes as applying only to income taxes.