Liver Failure and Other Cures

Clive Crook jumps on board with Bruce Bartlett and I supporting a VAT. The seemingly unquenchable thirst for new and current spending requires a new tax regime be enacted before fiscal collapse.

National bankruptcy of the sort that Britain experienced in the 1970s or Latin America in the 1980s would break the impasse, and this is what it might take. This would be my prediction, if I had to make one. But there are better cures for alcoholism than liver failure.

Unlike income tax, which more than 40 per cent of Americans no longer pay, a VAT would ask everyone to pay something. No part of the electorate could vote for guaranteed health insurance entirely at other people’s expense. Some Democrats would recoil at this idea, but there is something in it for them: revenue to support the services they value.
Tying a consumption tax like a VAT to specific spending programs might help voters and our representatives be more responsible. Want more of a public good? Great! We just have to pay for it. In Healthcare, Guaranteed, Ezekiel Emanuel advocates a dedicated VAT to pay for the universal healthcare plan he envisions. He writes:
All the money needed to cover healthcare would be generated by the VAT.
If Americans want more money for healthcare services, they will have to persuade Congress to increase the VAT levy. Americans’ aversion to tax increases will restrain demands unless the added healthcare services are considered worth the cost. (p. 98-99)
The political hurdles to enact a VAT would be difficult since neither party has any strong incentive to propose an economically efficient and fiscally responsible tax. That probably says more about our problems than any specific dilemma.
How did Europe do it?
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