VAT Watch, ctd

Yglesias adds some thoughts on a VAT and specifically on Clive Crook’s advocacy of one.  He recognizes the need to raise more tax revenue but asks why a large carbon tax wouldn’t be sufficient.

So why “a 5 percent VAT together with a small carbon tax” instead of just a carbon tax high enough to raise whatever amount of money you would get with a 5 percent VAT together with a small carbon tax?

I certainly agree with the need for a carbon tax. Without looking at any specific economic analysis (so I could be wrong) on this question is seems plausible that a carbon tax just couldn’t raise enough revenue on its own (at least without too many negative economic effects). Our fiscal needs are so dire that a carbon tax at that level would just be too high to be effective.  Two obvious concerns I would have:

1. Businesses wouldn’t be able to adapt fast enough (or at all) to a carbon tax that high causing severe economic shortages.
2. Part of the rational behind a carbon tax is to reduce carbon usage, thus the tax becomes less effective as a revenue source the more effective its disincentive effects. 


A VAT however has been repeatedly shown to efficiently and sufficiently raise revenues which is why it is the tax of choice of so many countries with large welfare states. Since a VAT can raise comparatively more revenue at a lower marginal rate, a balanced approach between a VAT and a carbon tax still seems most persuasive. 
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