James Pethokoukis

Politics and policy from inside Washington

The reality behind the VAT

April 22, 2010

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.

Comments

I agree 100% with your assessment.

Posted by drewbie | Report as abusive
 

I’d be for linearization of income tax too, right after the IRS raids the Cayman Islands. Guess that makes me at least a part-time libertarian.

Posted by HBC | Report as abusive
 

The reality behind the VAT
The concept of VAT is excellent.
i.e., it ensures that all contribute to the country’s expenditure.
Alas however, Politian’s and other vested interest will decide it is all the more cash to squander.
So in real terms, it is not a solution to living high on the hog at others expense.

Posted by The1eyedman | Report as abusive
 

Hahahaha! You don’t really believe they are going to cut spending First?! Or lose the income tax?! Or raise GDP before raising taxes?! Hahahaha!…

Posted by wwfin | Report as abusive
 

Circular thinking, you are correct wwfin.

Other taxes are never cancelled.

Posted by Ghandiolfini | Report as abusive
 

The VAT is horrible because it is hidden. The income tax is beautiful because it is seen as it is taken. The VAT and hence the size of government can be increased to extraordinary levels and most people don’t even notice.

One reason America has been able to separate itself from the long-term secular decline of Europe is that our taxes have remained low, because our taxes are seen. In Europe by contrast, massive governments dominate every aspect of life and people end up much less free and much more dependent on their state.

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