VAT Watch

Clive Crook continues to push for a VAT to help deal with long-term deficits.

I put in another word for a VAT, which is still regarded as an outlandish idea. You could make this the litmus test: as long as a VAT is regarded as political suicide, the country isn’t ready to be serious.

Veronique de Rugy over at a National Review blog counters VAT advocates who think it could be used to pay down debt.

I can’t understand how supposedly free-market advocates can consider a VAT. No matter what the positive theoretical characteristics of a VAT are, we must fight it to our last and dying breath. The VAT is an enormous money machine for governments and there is no doubt that if we give politicians in Washington a new source of revenue we will get more government and more spending, more corruption and more waste. How can anyone really believe that Washington will use this new source of revenue to just pay off its debt?

If you follow Rugy’s link to CATO, Daniel Mitchell tries to rebut Bartlett VAT championing.

[Bartlett] makes the point that a VAT does not do as much damage, per dollar raised, as the personal or corporate income tax, but so what? That would only be a compelling argument if the VAT was used to eliminate other taxes.

Like Rugy, Mitchell’s argument is that a VAT would make it too easy to raise revenue and thus help aid in the growth of government. Bartlett basically concedes this point, but Mitchell (like most Libertarians) is an idealist that doesn’t seem to ever recognize our democratic reality. In order to prevent absolute fiscal catastrophe, revenues need to rise – spending is just too politically impossible to cut enough to get away with not raising taxes. So, VAT proponents argue that if you have to raise taxes – do so efficiently. Europe can finance a huge state with a VAT without crippling economic growth (or freedom as Hayek worried). I’d love for politicians to wildly scale back the size of government. I’d vote for politicians that have the courage to do so. I’ll help libertarians and small government supporters however I can. But I’m not going to close the door on fiscal sanity to wait for an improbable political transformation that may never happen. In a democracy fighting for ideals is important, ignoring reality is naive.


[update]: Tyler Cowen at his Marginal Revolution blog makes the case for a VAT. 
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