The Wrong Policy at the Wrong Time

The problem with the Value-Added Tax

Widely used in Europe, the Value-Added Tax (VAT) has always seemed a non-starter in the United States. That may be changing given apparently insurmountable structural deficits and fear that the financial collapse of Greece could happen here if revenue isn't increased. These days, the VAT is being taken seriously even by pro-market conservatives and libertarians. A VAT is a consumption tax which is levied at each stage of production based on the value added to the product at that stage.

Harvard economist Gregory Mankiw, the former chairman of George W. Bush’s Council of Economic Advisors, recently wrote in favor of a VAT if part of the revenue was dedicated to deficit reduction. If it's true that the level of spending cuts needed to shrink deficits are politically unrealistic, explains Mankiw, then "a VAT is...the best of a bunch of bad alternatives.  Conservatives...should be willing to swallow a VAT as long as they get enough other things from the deal.” For Mankiw, the "other things" are primarily deficit reduction.

My Mercatus Center and George Mason University colleague, the free-market economist Tyler Cowen, while not endorsing the VAT recently wondered at which point of our financial troubles would we consider it. “What if government default were a week away and there wasn't enough short-term spending to cut," he wrote. "Would you consider a VAT then? I hope so. How far back toward the present will you go in considering a VAT?”

The VAT started in France in 1956. Today, it has spread to most European countries, as well as countries such as Australia, New Zealand, and India. It is a tax on the transfer of goods and services that ultimately is borne by the consumer. As such, it increases the cost of just about everything, from your bread and cheese to a visit to the hair salon. Because it taxes consumption rather than income it is a better tax than an income tax that penalizes savings and investment. It is also a fantastic revenue-raising machine. For a sense of just how efficient the VAT is at squeezing revenue out of everyone and everything, Fortune offers an example of how the VAT could figure into the purchase of a car.

Liberals and big-government enthusiasts like the VAT precisely because it's so ubiquitous (and because it's typically layered on top of existing taxes, rather than being substituted for them). For pro-market foks, the VAT is appealing only if its funds are mostly used for deficit reduction and, hence, avoiding a Greek-style collapse brought on by unsustainably large public-sector debt. Cowen, for instance, asks if maybe “there exists a credible bipartisan deal which involves at least half the VAT revenue for deficit reduction, combined with cuts, or slower increases, in marginal tax rates on income and perhaps an elimination of the corporate income tax."

The first thing to note is that Greece collapsed in spite of having a 19 percent VAT since 2005. The second thing is that there's little to no chance that the government could credibly commit to assign even a share of any new VAT revenue to deficit reduction. Take President Obama’s first budget, released last year. In it, he assumed that most of the $600 billion coming from proposed cap-and-trade fees would be allocated to deficit reduction. A year later, his budget still assumes the revenue (even though the law is not yet passed), but all of it has been allocated to spending programs, not to reducing the deficit. A government that cannot commit fictional revenue to deficit reduction is unlikely to do so with actual money either.

There's more. Even if the government could credibly pledge VAT revenue to deficit reduction, a VAT would not even start to address our problems. Projections by the Tax Policy Center show that a 5 percent VAT in the U.S. would raise over $3 trillion in the next 10 years. However, using Office of Management and Budget data, we can see that in the next decade, we would need an additional $5.8 trillion in revenue to fill the gap.

VAT Revenue and Additional Revenue needed over ten years (using OMB and Tax Policy Center numbers)

Even a 10 percent VAT—the rate that Ezekiel Emanuel, the brother of White House chief of staff Rahm Emanuel and a health-care adviser to White House Budget Director Peter Orszag, argues would pay for every American not entitled to Medicare or Medicaid to enroll in a health plan with no deductibles and minimal copayments—wouldn’t be enough to cover our short-term deficits.

And our real financial troubles only kick in after that period, when baby boomers will start retiring and Medicare costs will explode (see the chart here). The VAT doesn’t start to cover this spending explosion, though it could introduce perverse incentives to the labor market. As economist Arnold Kling explains at EconLog: “Given all of our other taxes, I doubt that a VAT would raise enough money at the margin to make a difference. Already, marginal tax rates are very high for several classes of people, particularly those with low enough incomes to qualify for various means-tested government programs. Introduce a significant VAT on top of the current tax system, and lots of people are going to decide that housework and the underground economy are more lucrative than working in the market.”

Beyond questions of how much revenue it might generate, the presumption underlying the push for a VAT by pro-market economists is that the government can’t effectively cut spending or reform entitlements. While this position has a compelling amount of historical evidence in its favor, I don’t think this is true.

Obviously, the amount of spending cuts required to meet our upcoming fiscal crisis is exponentially bigger than what most countries have managed to trim in the past. Even if the small spending cuts that were achieved in the 1990s were somehow reproduced, they would not put a dent in our debt. But VAT proponents who claim that we can’t cut spending enough or reform entitlements underestimate the fact that the massive redistribution of income from the young to the old will soon become politically unsustainable. Everyone simply assumes that younger generations won’t be willing or able to take dramatic measures to force a change to the status quo.

Yet a 2008 Winston Group survey showed that 56 percent of voters believe the free market is a better way to solve problems than expanded government programs. Of the 18-25 year old group, 36 percent believed that the best way to increase economic growth and create jobs is to cut taxes (26 percent disagreed). Back in 2004 during George W. Bush's abortive attempt to reform entitlements, 74 percent of 18-25 year olds favored Social Security privatization.

This support for markets surely has to do with the fact that few younger voters believe that they will receive much from the government when they retire. In July 2009, a Zogby poll found that only 18 percent of voters in the 18-29 age range think they will ever see Social Security checks one day. This same poll found that only 39 percent of voters in this age range thought that Medicare would be there for them, and a mere 20 percent thought that it would be there for their children.

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  • robc||

    These days, the VAT is being taken seriously even by pro-market conservatives and libertarians.

    What libertarian takes it seriously? Now as a replacement for the income tax, maybe. Thats really no different than the fair tax at that point.

    I take George's Single Tax more seriously than VAT.

  • CTHORM@IBIS||

    FairTax ftw.

    The only superior alternative (excl no taxes) would be a Land Value Tax version of fair tax.

  • jn||

    why should we exclude no taxes?

  • People Power Hour||

    Exactly. I've never noticed a discussion about coercive revenue generation include Just Not Doing It To Begin With. If government operated correctly, with properly delimited operations, government could be operated on voluntary payments.

  • robc||

    I've never noticed a discussion about coercive revenue generation include Just Not Doing It To Begin With

    Unfamiliar with the Standard Libertarian Disclaimer?

  • robc||

    here

    Its implied in all my posts.

  • ||

    A tax that is woven into the price of everything you buy and that way hidden from view? No thanks. I'll take a flat tax.

    What's George's Single Tax?

  • robc||

    Single Land Tax. Tax on the undeveloped value of the land - no other taxes.

    http://en.wikipedia.org/wiki/Land_value_tax

  • robc||

    In the context of land value taxation as a single tax (replacing all other taxes), some have argued that LVT alone cannot raise large enough revenues.

    I consider this a feature, not a bug. If the LVT is raised too high, it leads to abandonment and lower tax revenue. Thus, there is a maximum LVT, and if its a single tax, a maximum amount for government to spend.

  • ||

    Of course, raising the LVT too much leads to more and more land passing into the "dead hand" of the government via enforcement of tax liens, never to emerge again into private ownership.

    No thanks.

  • CTHORM@IBIS||

    You can take this circular train all day. If government can't reign in spending, awful collapse occurs no matter the tax system. The LVT is the most economically efficient tax, period. This means that government services funded by an LVT are the least damaging.

    Leins/Seizures are no worse than IRS wage garnishments or liens. Don't let the perfect be the enemy of the good for fucks sake.

  • what||

    Land tax? Are you kidding? No tax.

  • ||

    Single Land Tax. Tax on the undeveloped value of the land - no other taxes. download lottery ticket | download nanny mcphee returns

  • ||

    "the free-market economist Tyler Cowen, “What if government default were a week away and there wasn't enough short-term spending to cut," he wrote. "Would you consider a VAT then? I hope so."

    First off I do not comprehend this thing "default". I am a pro-federal reserve libertarian. I have always believed that this meant the Fed was the lender of last resort. Why Would the Fed not create some currency and lend it to us in our moment of dire need? Can't we get through this rough period theoretically if we just manipulate interest rates in just the right way to give a boost to the economy and once it gets going worry about inflation. if debts are to big we can always print it right and the savings glut is still around right...won't they always love to invest in our awesome country, especially now that we have Obama?

    But disregarding that, I think Tyler has captured the essence of every true libertarian nightmare. If my beloved government was about to default. I would be despondent.

    The same Bushama government I snuggily dream about taking money from my kids piggy banks in order to spread good chear all over the middle east every night....I would be peeing my pants in fear if I thought the government might default. I would be willing to not only sign up for a VAT tax, but also get a chip implant and send both sons off to war in Afghanistan to hopefully be the first ones home in boxes it would be such a fucking great honor. Most libertarians like me also dream of having Dick Cheney and Don Rumsfeld come over and rape their wife in a closet if they only had one erection left before they died of heart failure...wouldn't Tyler Cowen....boy I sure fucking hope so? because after all our complaining, we really do love this government when it really comes down to it.

  • dave b.||

    The Reason cosmotarians take it seriously, along with the abhorrent fairtax. True libertarians are for zero income taxation.

  • ||

    Since when is the fairtax income taxation?

  • what||

    "What libertarian takes it seriously?"

    Amen. Veronique De Taxque seems to think that income tax + VAT is an answer. I didn't know that reason had left the building. How about no taxes? Deficit reduction? That's code for a lot less government - not a VAT. Is Vernonique just trying to be polemical or is she just playing for the away team?

  • ||

    Tyler has a good career. If she is nice to him she can possibly go from getting pieces in the WSJ occasionally to getting a regular gig in the NYT. Hope it works out well for her.

  • ||

    Thanks for demonstrating that you didn't read the article, what.

  • ||

    How does a tax add value to anything?

  • ||

    Sure sounds like it does. Where can I sign up?

  • what||

    It adds value to my pension. Oh, snap!

  • Mark||

    If the Canadian experience is anything to go by, a VAT would be political suicide for whatever party decided to enact it.

  • robc||

    I assume Canada implemented it IN ADDITION to other taxes, not in replacement of.

    VAT instead of the income tax would be reasonable to me. I would prefer neither, of course.

  • Kiloc||

    Actually the GST( Goods and Services ) tax replaced a 'hidden' tax the MST( Manufactures' Sales Tax). When the GST was implemented it was 7% whereas the MST was 13.5%.

  • invisible furry hand||

    same for Australia - it replaced the wholesale sales tax. An extra oddity is that it doesn't apply to certain foods (usually unporcessed / fresh foods). This was a sop to the left-wing party that held the balance of power in the Senate. An unexpected side-effect, therefore, is that Australia has an (indirect) soda tax - my chocolate and Coke are taxed, my apple and water aren't. And no, ten years later, our obesity rates haven't dropped.

  • jn||

    robc... if you believe substitution is an option, you live in fairy lollipop rainbow eurodisneyland...
    In the real world you would get both...

  • jn||

    Just for a minute, try to think like a politician in power, even a reformer...
    You think what you do is enormously important, morally superior and of course YOU KNOW that you know better than your fellow men (why would you want to rule otherwise?).. which of course means that the money you take from them is in good hands... will be better spent on IMPORTANT STUFF instead of ipods and SUVs...
    WHY o WHY would you ever vote away your funding?

  • robc||

    Which is why I oppose the FairTax, for example. If it came with after a repeal of the 16th amendment, thats different, but no replacement while the 16th still exists.

  • Chas C-Q||

    "If it came with (sic) after a repeal of the 16th amendment, ..."

    That's how the Fair Tax bill is written. Accept no substitutes.

    If you're discussing a "Fair Tax" without that clause, then you're not discussing the Fair Tax; you're bait'n'switching.

  • Bob's Blue Jeans||

    A flat tax is the fair and equitable solution. Will it fix the deficit? No, but that's where reduced spending comes into play.

  • People Power Hour||

    Actually, NO tax can be fair if it is enforced by threat of prison or death.... Please at least attempt to learn how to properly use the language and quit falling for these government-sanctioned definitions of words.

  • Hank||

    Alright, perhaps now is the appropriate time to solicit opinions of the Fair Tax. Please, anyone, indulge me. While it isn't perfect like the current tax system (vomit), it is appealing to me because it revokes a measure of power from the dipshits in Washington, parituclarly their perpetual "I'm gonna tax THEM, and benevolently give to YOU" campaign platform. Obviously entitlements and government largess are the biggest problems, but until some power is revoked from those fucking insolent assholes in Washington, ain't nothin' gonna change, or hope.

  • ||

    I'm constitutionally inhibited from endorsing anything with the word "fair" or "smart" in it's title. That's the surest tip-off that it's anything but.

  • robc||

    or "equitable" or "patriot".

  • Hank||

    How about "reform?" That seems to be a winner.

  • ||

    I am a Fairtax supporter. While it certainly isn't perfect, it's much, much better than what we have now and also much better than the VAT. It's certainly much easier to implement than either.

    The thing that I like most is that unlike the previous two systems, it's transparent. You can see how much money you're paying in tax. It's right there on your bill. It's easy to understand. You buy something, you pay tax.

    I just recently moved from Tennessee (a no income tax state) to Michigan (income tax). Additionally, there's a city income tax here. The extra work and forms really made me appreciate that sales tax...well except there's one of those here too. But all the forms and calculating drives me nuts.

    So, in conclusion, Fairtax equals revenue neutral, easy to understand, and vastly superior to other systems, though not perfect. Yes, you can nitpick certain flaws, but I'll take a few flaws over broken every time.

  • ||

    Beyond questions of how much revenue it might generate, the presumption underlying the push for a VAT by pro-market economists is that the government can’t effectively cut spending or reform entitlements.

    Wait, what? The drunk isn't able to stop drinking, so we're buying him a bar?

  • ||

    the presumption underlying the push for a VAT by pro-market economists is that the government can’t effectively cut spending or reform entitlements.

    So the VAT will impoverish the country in exchange for delaying the day of reckoning?

    And this is the best the supporters can say for it?

  • ||

    That's basically Bruce Bartlett's argument. He's given up on cutting spending.

  • prolefeed||

    These days, the VAT is being taken seriously even by pro-market conservatives and libertarians.

    Supporting adding a new tax like this for the purpose of raising larege amounts of additional government revenue would pretty much reveal the supporter as NOT being a libertarian or a pro-market conservative, however much they might stake that false claim.

  • prolefeed||

    It is also a fantastic revenue-raising machine. For a sense of just how efficient the VAT is at squeezing revenue out of everyone and everything, Fortune offers an example of how the VAT could figure into the purchase of a car.

    Liberals and big-government enthusiasts like the VAT precisely because it's so ubiquitous

    Yes, this sounds EXACTLY like something that would resonate with libertarians and pro-market conservatives.

  • ||

    Hey prole--The missus sent me a link about the most affordable 'burbs in the country. #3 was a Honolulu suburb, to which I thought, "that can't be right in a zillion years." Know anything about Mililani Town, Hawaii? Could it be true? Affordable living in HI?

    http://realestate.yahoo.com/pr.....erica-2010

  • ||

    Of course VAT is liked by Conservatives, you drip. All over the World Liberals hate it, because Conservatives want to use it to tidy up the tax system and to decrease income tax rates (that's what the Conservatives did here in Australia and our economy became the best in the World as a result: no Financial crisis for us in 2008).

    Liberals hate VAT because they see it as taxing the poor. Good, so it should.

  • Byron||

    Indeed. You disappoint me more by the day, Veronique.

  • ||

    here in ol' Europe, lots of people like VAT because of the nice merry-go-round option.

  • ||

    Cut spending, give me back my danged money. Or face the consequences when we finally freak out on you people.

  • ||

    He means it too. You wouldn't like him when he's angry.

  • ||

    Live cat-juggling, dogs and cats living together, chaos!

  • what||

    Live cat juggling was banned by the Lucerne Disco Convention of 1977.

  • jacob||

    Could there be a God in heaven that would let this go on!!

  • ||

    If it's going to happen any time, it'll be soon. We're reaching the point where the government juggernaut has to downsize, or bleed us more during a terrible economic period when people will feel it the most.

    I'm actually slightly optimistic that some positive change will come of this. Either the scumfucks just keep bleeding us until we revolt/vote them out, or they get the message.

    We'll see.

  • ||

    I'm actually slightly optimistic that some positive change will come of this.

    You silly, silly man. Too many people have just accepted that this is the way it's supposed to be, with all the breads and circuses you can eat.

    It's going to take an catastrophic economic collapse to effect *any* real change, and even then it will still be all of Bush's fault. Until then, we'll just keep nibbling around the edges and call it "change" or "reform."

  • ||

    Sure, except the government is so out of fucking control at this point, I don't know if the politicians can rein it back in just enough to do as you say. They're trying, of course--they're thinking up every sneaky fuck way to squeeze more money out of us without us noticing--but that probably won't be enough. And then they have to bring the pain to us, or to government employees.

    If they choose to bring the pain to us, they're in trouble; they'll get voted out or there will be actual violence or something. And if they bring the pain to government workers, we win (a little).

    This is why I'm kind of optimistic. It's gotten so bad something has to change, which was really where we knew it would go eventually, just not this soon.

  • ||

    I won't be optimistic about any change for the better until I'm pointing a shotgun out the gun port in the door of my foritifed, well-stocked survival shelter, ready to shoot the guy down at the end of the block who's out looting again.

  • The Bearded Hobbit||

    Why tax income at all? The more you make the more you're punished in taxes? Why pay a penalty for doing well?

    I've always thought that a sales-type tax would be the best option. Leave necessities like groceries and medical care untaxed and you can avoid paying almost any taxes if you simply don't buy things.

    ... Hobbit

  • ||

    BH, you don't understand that wealth is a good proxy for evil - the more you have, the more you have stolen from the Sainted Proletariat, the more you oppress the Blessed Poor, the more evil you are.

    Ergo, the more progressive the tax, the more moral it is.

    Hope and Change, baby! Embrace confiscatory taxes, for they are your salvation!

  • Jimmy 'Crack' Corn||

    R C Dean,
    When using parts of Barry's speaches, please use quotation marks.

  • SIV||

    You can avoid income taxes too, and free up a lot of spare time.

  • lukas||

    Oh, small businesses L-U-R-V-E the VAT. More paperwork, yay!

    And don't think for a minute that there will be a single, uniform VAT an all goods and services. As the European example has shown, such a powerful tool for social policy and handouts to business will not go unused, and myriads of exemptions and special tax rates for certain goods will follow.

  • Invisible Finger||

    Oh, small businesses L-U-R-V-E the VAT. More paperwork, yay!

    All part of the Democrat plan to eliminate small business and increase the power of big business.

  • ||

    Seems true, doesn't it? Yet how do they reconcile that with their rhetoric about the little guy?

  • ||

    Easy. They know both are bullshit.

  • ||

    Tax imports from countries that artificially reduce the value of currency or subsidize exports to compete. We need to tax American industries that produce goods with foreign labor. The result will increase jobs in non-service industries. We need jobs before any tax is used to support service industries that depends on domestic job losses.

  • ||

    One of the big reasons that American business uses foreign labor is they are already taxed like hell for using domestic.

  • ||

    Here's why we will get a VAT:

    Conservatives like the VAT because it hurts the poor more than the income tax.

    Liberals like the VAT because they like all taxes.

    So, a bipartisan consensus is possible.

  • OMG||

    This is just a bullshit restatement of a Lawrence Summers quote, where he basically said that the VAT hadn't yet been adopted because Liberals think it's regressive and conservatives think it's a money machine, but that it would be adopted once conservatives realize that it's regressive and liberals realize it's a money machine.

  • OMG||

    A say that the quote is bullshit due to the fact that it is obviously coming out of that asshole, Summers

  • SIV||

    These days, the VAT is being taken seriously even by pro-market conservatives and libertarians.

    Because nothing is more pro-market, conservative and libertarian than greatly increasing government revenue.
    Stealing even more money from us would be an act of aggression, no?
    So we can crucify these people on telephone poles without violating the "principle" right? It would serve as a valuable object lesson for others.

  • what||

    Hear hear!

  • Tim Geithner||

    The first thing to note is that Greece collapsed in spite of having a 19 percent VAT since 2005.

    Ours will be higher than that, you forking retreads.

  • what||

    VAT is just an excuse for more government excess. The Greeks now have 21% VAT. And, the civil servants still get 14 months pay / year! (Oh, wait, one of the 2 extra months was reduced by 30% - my bad).

  • ||

    So I suppose you are against a living wage.

  • ||

    I'm confused as to how a VAT doesn't spawn a huge black market for goods and services. It seems like a huge perverse incentive for organized crime and to turn average citizens into law breakers. I mean if I have to pay my 8% or 10% sales tax on something, plus a 20% VAT markup for the federal government, I'm going to the black market for any big purchases. Or I'm going to move to a Mexican border town and drive over the border to buy stuff.

    For non-major purchases, I'm just going to make less of them. I mean the logic here just eludes me. If the price of stuff goes up 20% just from a tax, I'm just not going to buy as much stuff. I'll do without. If people buy less stuff, businesses make less money, lay off more people, the economy shrinks more, fewer people have money to pay the tax....it is a death spiral. Which probably partially explains the robust economies of the EU.

    And approving a new tax is like giving a needle to a junkie--it just wouldn't be responsible of us to let the government continue the spending addiction. Time to check into rehab...

  • ||

    I know I don't work for you guys yet, but I thought I'd fix this bit for you anyway Veronique.

    "the presumption underlying the push for a VAT by

    pro-market economist

    pro-government economist is that the government can’t effectively cut spending or reform entitlements" and the lenders to the government must get their pound of flesh.

  • ||

    now the joke is ruined
    "the presumption underlying the push for a VAT by pro-market economist
    pro-government economist is that the government can’t effectively cut spending or reform entitlements" and the lenders to the government must get their pound of flesh.

  • ||

    This has to be one of my favorite articles of all time here at Reason. Finally we figured out the perfect tax to properly incentivize people not to create ANYTHING of value. Senators:no value added no taxes. Prison owners: we ain't creating value just locking up slaves we promise sir...if they start trying to produce something of value we will cut that shit out real fast.

    Lawyers: oh no value is being added here we are just trying to sue people to get our share. Farmers, manufacturers, programmers...pay up bitches!!! you fuckers are gonna learn to do to some unproductive shit or ELSE!

    "Cowen, for instance, asks if maybe “there exists a credible bipartisan deal which involves at least half the VAT revenue for deficit reduction, combined with cuts, or slower increases, in marginal tax rates on income and perhaps an elimination of the corporate income tax."

    So we don't have to layer on this new tax, we can just add in this new tax and in the future we can slow down the INCREASES in the other taxes. This is the type of win/win comprimise that has made Lockheed Martin and Goldman Sachs so great. It is so elegant and libertarian in everyway that it makes me want to stuff a dildo in Miss Rothtards casket.

    Boy it sure is great to know that libertarians will be here for generations to come to make sure that our grandchildren are chained to their assembly lines if that is what it takes to pay off people who buy debt from a corrupt governemnt. One thing I hate is grandchildren who welch on the debts wracked up by their grand parents foreign invasions.

    Tyler Cowen is a truly great libertarian. The way he takes in much of the NYT crowd with his intriguing restraunt reviews and then secretly teaches then about how "the Paulson Bailout plan was better than nothing".

    If it hadn't been for this sort of informed libertarian analysis then we'd be knee deep in populist, baby rescuing, evolution teaching anarchy by now.

  • ||

    This has to be one of my favorite articles of all time here at Reason. Finally we figured out the perfect tax to properly incentivize people not to create ANYTHING of value. Senators:no value added no taxes. Prison owners: we ain't creating value just locking up slaves we promise sir...if they start trying to produce something of value we will cut that shit out real fast.

    Lawyers: oh no value is being added here we are just trying to sue people to get our share. Farmers, manufacturers, programmers...pay up bitches!!! you fuckers are gonna learn to do to some unproductive shit or ELSE!

    "Cowen, for instance, asks if maybe “there exists a credible bipartisan deal which involves at least half the VAT revenue for deficit reduction, combined with cuts, or slower increases, in marginal tax rates on income and perhaps an elimination of the corporate income tax."

    So we don't have to layer on this new tax, we can just add in this new tax and in the future we can slow down the INCREASES in the other taxes. This is the type of win/win comprimise that has made Lockheed Martin and Goldman Sachs so great. It is so elegant and libertarian in everyway that it makes me want to stuff a dildo in Miss Rothtards casket.

    Boy it sure is great to know that libertarians will be here for generations to come to make sure that our grandchildren are chained to their assembly lines if that is what it takes to pay off people who buy debt from a corrupt governemnt. One thing I hate is grandchildren who welch on the debts wracked up by their grand parents foreign invasions.

    Tyler Cowen is a truly great libertarian. The way he takes in much of the NYT crowd with his intriguing restraunt reviews and then secretly teaches then about how "the Paulson Bailout plan was better than nothing".

    If it hadn't been for this sort of informed libertarian analysis then we'd be knee deep in populist, baby rescuing, evolution teaching anarchy by now.

  • ||

    Well, as a young non-voter, I have to agree that most young people don't believe they will ever see a social security or medicare check. We don't even pretend we will. To us, it's clearly just taking money from the young to give to the old. Considering how much it sucks to be young, word needs only to get around to really cause some damage.

    On the spending side of the budget, why couldn't we replace every bit of government spending today with about 9 subsidies that would be given to adults that they could use in the free market.

    I calculate that there is about 6 trillion dollars a year of spending by state and federal government in the united states. At about 230 million adults that's about 26,000 dollars per adult. Now, we could give out about 5 regressive subsidies (subsidies that would decrease as your income increased) for healthcare, education vouchers, housing and food voucher, employer subsidy (a subsidy that would be given to your employer for hiring you), and transportation voucher totaling about 8,000 dollars each per year for the poorest families, eventually regressing to nothing for those making over 70,000 a year. The remaining 6,000 per adult would be used for police, military, courts, and essential services that haven't been mentioned. 6,000 times 230 million is almost 1.4 trillion. That should be enough to pay for the remaining essential services.

    I included the elderly in these subsidies, (there are only 150 million working adults, so many of the subsidies wouldn't even apply to many adults, so the actual numbers will be much more satisfying) so social security and medicare wouldn't even be an issue anymore.

    Replace the government with a few subsidies and a few core processes. Let people spend the money in the way that they see fit, unless you believe that the government is adding value in some way.....

  • ||

    At least my numbers add up. At least in theory.

  • ||

    On a separate note, I really hate the, "You can't end social security, because I've been paying into it for so long!" argument. You've been paying into lots of government programs that suck for a long time, and from time time some of them actually end. Nobody argues that we should continue spending money on building a road once we figure out that the terrain isn't suited for it, just on the grounds that we've already spent a lot. That would be insanity. If you never ended a program that people had been paying into, no government program would ever end. The justification would cause spending to grow to infinity.

  • ||

    They don't end. Rural Electrification anyone?

  • atlashrug||

    On the surface a VAT may appear to tax consumption but it actually taxes the generation of value or wealth. That alone is a reason to reject that initiative.

  • ||

    So you just want to quit trying to win the war on terror? just quit?

  • Chad||

    VAT + Carbon tax + Universal Health Care + SS reform (means testing and increased retirement age) + lopping off a third of the defense budget = balanced budget.

    Anyone who claims it is going to be any easier is a liar.

  • ||

    Universal healthcare doesn't help balance the budget over the long run. Nationalized healthcare systems have seen similar cost increases. Even if by nationalizing healthcare, we lowered healthcare to 13 percent of GDP, that would still be atrocious compared to the 5 percent that the country was paying. Everything else you say is also nonsensical. I liked my collection of subsidies idea much better.

  • Chad||

    "similar cost increases" from a smaller base = lower costs. Dramatically so, in fact. We are overpaying by ~50%, and it is killing both our people and our economy.

  • ||

    We are overpaying by ~50%, and it is killing both our people and our economy.

    We're overpaying by ~50% in Medicare and Medicaid as well. And yet Congress continually blocks attempts to pay less in Medicare. Perhaps we can't really cut costs by that much and achieve the same result. Perhaps there are societal differences.

    Achieve something in Medicare, then we'll talk.

    Lowering average premiums by forcing suckers to sign up isn't the same as lowering total costs.

  • ||

    OK, since you're so willing to assume we could adopt any radically cheaper system used by another country, why not adopt the Singaporean system? They spend a lot less of GDP on health care than we do, and they do it through HSA-style health insurance.

  • ||

    Overpaying based on what? How do we know that they aren't underpaying? MOst of the profit motive for drug development comes from the US. I know that you'll argue, "Actually, other countries spend more than we do!" Hold on now, okay. Yes, some countries outspend us in certain areas on research, but you can't deny that the US market, being the most profitable, by your own admission, drives much of the WORLD of medical research. Regardless of whether the research is being done in Japan or the US, it is the US profit motive that encourages much of the investment in pharmaceutical research.

  • ||

    Also, I've recently heard of rumblings that the European system might see cost increases in the future that will be raise their overall cost to a level similar to ours. They've seen a little bit of a delay in their cost increases, but they'll be hit with similar costs down the line.

  • The Libertarian Guy||

    Higher taxes = good. You liberals would want to raise taxes if we WEREN'T at war or in shitloads of debt you helped create.

  • ||

    I have been a libertarian for some years but never understood why disgusting, foul mouthed language seems to be a requisite for the title.

  • ||

    "Military men are dumb, stupid animals to be used as pawns for foreign policy." Henry Kissinger

  • ||

    Maybe we could have some good Navy men come in here and give us lessons on how to talk with appetizing, clean mouthed language or maybe the Navy guys can explain some wholesome traditions they have for when the new guys cross the Equater the first time, you know stuff to tell my 6 year old about to get him excited about a life in the military.

    Everyone knows that it is the language we use that determines our morality,not our actions. So we can shoot depleted uranium all over fallujah and cause thousands of deformed babies for decades and it is all erased if we say things like "support the troops" and "god bless america".

  • jacob||

    +1

  • ||

    fuckin a

  • ||

    Does the adjective "depleted" mean anything to you, or do you actually think we are using radioactive armor piercing rounds in our tanks? I just have to ask, because when I first read about depleted uranium it was clear to me that the NONRADIOACTIVE uranium was being used for projectiles, while the "enriched" uranium, which has all the yummy radioactive isotopes, was being used for nuke plants and bombs.

    Or did I miss something in the translation from English to English here?

  • Doc Brown||

    Non-radioactive uranium? Pray tell, when was this discovered?

    Depleted U has 60% the radioactive dose as natural uranium.

  • ||

    "when I first read about depleted uranium it was clear to me that the NONRADIOACTIVE uranium was being used for projectiles"

    ...um let me guess, you first read about this when the government or some army manual was putting out information to counter the "false myths" and "conspiracy theories" concerning depleted uranium in our weapons?

    Doc Brown answered your ignorant question Mikee. yes it is radioactive, it fucks up US soldiers and their kids and it fucks up the people we "liberate" too.

  • ||

    isotopes and shit right Mikee?

  • Jimmy 'Crack' Corn||

    -8

  • ||

    It isn't, unless it's needed to spice up the otherwise meaningless drivel.

  • ||

    the value creators are the real evil doers...value creation is what causes more humans and quality of life and both of these things increase your carbon footprint. So taxing value just cuts right to the root cause. humanity = the enemy. I can't even take credit for thinking of this idea. Club Of Rome"The First Global Revolution" read it bitches!

  • Some Guy||

    The second thing is that there's little to no chance that the government could credibly commit to assign even a share of any new VAT revenue to deficit reduction.

    I think it's very credible. The government's spending has almost no correlation to the amount of revenue they bring in at this point. So anything that brings in more revenue will decrease the deficit.

  • what||

    lol

  • Supra Vaider||

    Cool website, like what I have read. Will definitely be back to read again.

  • what||

    "What if government default were a week away and there wasn't enough short-term spending to cut," he wrote. "Would you consider a VAT then? I hope so. How far back toward the present will you go in considering a VAT?”"

    WTF?

  • what||

    Does anyone at reason read this shit before she posts it? I still can't believe this garbage.

    For Veronique's next act, she will propose an increase in spending to stop the drug ware.

  • robc||

    Did you even read the title of the article?

  • ||

    ya like robc said, If you see a paragraph that makes no sense just substitute the title of the article for the insanely statist commentary.

    If that is too hard then just read the titles of articles int eh future like the rest of your fellow illiterate tax slaves...the actual content of the article is meaningless.

  • ||

    Yes, God forbid a libertarian should actually be familiar with the arguments of the other side and present them before attacking them or saying that they're insufficient.

    It's always much better to be totally ignorant of what the other side is saying, according to what and Cosmotarian Overlord.

  • ||

    Tyler Cowen is on MY side, not the other side. He hopes that you would allow a VAT if the governemnt were on the verge of default and he is a "serious libertarian".

    If Veronique were just presenting the other side then she'd say "pro-government economist Tyler Cowen"...instead she says stuff like really cool libertarian Tyler Cowen.

    See the difference John Thacker?

  • what||

    Drug war.

    But drug wares are good too.

  • ||

    Veronique - I'm generally in agreement with you - no new taxes! But what do you think about the idea of replacing payroll taxes with VAT taxes?

    The way I understand it, most other countries fund their social services this way. This puts us at a competitive disadvantage. If Ford tries to sell a Focus in Germany, the cost of payroll taxes are rolled up in the labor cost of the car. Then a German VAT is added on top of that. A Volkswagen only has this burden added in once, and if it's exported to America, has no burden at all.

    Or do I have this all wrong?

  • ||

    I'm completely in favor of a VAT in return for 4 constitutional amendments:

    (1) There shall be no tax upon income or interest.

    (2) There shall be no federal sales tax.

    (3) The federal government is forbidden transfer money to any other government. (That would include city, county, state, parish, foreign, etc.)

    (4) There shall be no taxes upon the import or export or goods or services.

  • ||

    A VAT is a one-time tax on savings, and as such is totally unfair to those of us who actually saved for retirement, and paid income taxes once on those savings, as opposed to the spendthrifts who are counting on Uncle Sam to bail out their retirement.

  • ||

    Didn't anyone ever tell you that sometimes life isn't fair? Part of the reason we're in such a mess is because we've been looking for fairness for so long. Life isn't fair.

    The VAT is a bad tax and another solution is needed, but regardless of what we do it is very likely that many of us who have paid into some of these boondoggle programs will get the shaft. But I'd rather get the shaft and have a country left than be Greece.

  • ||

    There are two separate issues; any tax vs. no tax, and VAT vs. some other tax. I think the current tax system is counterproductive and would like to see it improved. I think replacing the personal income tax, capital gains tax, and corporate income tax with a VAT makes economic sense. I am disappointed that the article and this comment thread don't discuss this option seriously.

  • ||

    "I think replacing the personal income tax, capital gains tax, and corporate income tax with a VAT makes economic sense. "

    Real libertarians get made fun of for being unrealistic, but this meme that we are going to replace the income tax with the VAT is pretty much the most unrealistic crap I have ever heard. Kinda like the war to end all wars and make it safe for democracy.

  • ||

    If your really going to argue for new taxes I'd prefer to not implement new taxes that open up huge areas of investigatory power and requirements for record keeping....Income taxes are bad enough in that regard. I can imagine whole new legions of bureacrats involved in defining the "value" added under an infinite # of different scenarios regarding different ways that goods and services int his country are produced. Millions of new opportunities for lobbyist to buy favorable rules for their particular niche. I know you guys think that is all paranoid and what not, so go ahead and proceed with setting up your new prison planet.

  • ||

    No, you are exactly right. The VAT is definitely going to improve the health of the lobbying industry.

  • ||

    Somewhat off topic, but Doug Casey regarding a potential Greece Default:

    "What they should do is default on their debt. And I don't just mean a gentle default, like Argentina's of a few years ago, in which people got some fifteen or twenty cents on the dollar back – I mean a 100% default. And that would be a good thing.

    L: How so?

    Doug: First of all, it would punish people stupid enough, or immoral enough, to lend governments money. They don't deserve to get their money back – they've been supporting these governments and their bad habits…

    L: Some of which involve killing people. And all of them make tax-slaves out of their subjects. Sounds like just desserts to me.

    Doug: Yes. Why should future citizens be effectively made into serfs in order to pay for the excessive consumption of people today? It's completely unjustified to foist the debts of the father on the sons and daughters. Most of that money has been totally wasted. A huge amount of what's been spent on foreign aid has been siphoned off by officials in the recipient countries. Just as much has gone into the pockets of "consultants" from the West, in payment for giving them rotten advice. Huge amounts have been skimmed in profits of companies who sold them projects that should never have been undertaken. So I say, default on it. Absolutely! To start with, it would bankrupt the IMF and World Bank, which would be a good start.

    "

  • Steff||

    Wow, I think that if I weren't married, I would totally marry that guy.

  • Dušan||

    A major advantage of the VAT is that it is flat (though rates might sometimes vary due to the type of goods, they cannot be "progressive" in the way income and profit tax often are).

  • ||

    VAT is a scheme...it was passed all over Europe as a promise that it would cut income tax rates and it always stars small and is in double digits in under a decade..If the government, that already steals 40% or so goes after another 10%, the economy will self destruct.

  • ||

    "If the government, that already steals 40% or so goes after another 10%, the economy will self destruct."

    True Jim,
    But don't we want the government to implode just as we get some new landmark libertarian taxes put into place by our very best libertarian economist like Tyler Cowen?

    This way we can say "see we tried the libertarian way, now lets try a corporate-government third way, it helps keep the stability". Good plan huh?

  • ||

    I actually live in Canada, we have a version of this tax at both the provincial and federal level. Insofar as the revenue it generates, it is not a bad way to go, though by no means perfect. There are sensible ways to add or detract from its success, for example here, there is no tax on essential items...grocery items like milk, sugar, butter, fruit, etc..as well as some personal items..tampons, diapers. Things like these have to be worked into whatever legislation exists. One also has to keep in mind that Americans are generally less inclined to accept taxes than any other nation in the Western World...I don't mean that to sound judgmental, merely an observation. On that note, I wonder would the public be more inclined to accept such a tax if the legislation itself provided an end-date? Say a certain level of debt-reduction? I don't know. It's certainly not ideal, but if no one really wants to cut spending, what the hell else do you do?
    To Robert, a VAT is NOT a one-time tax on savings. It is a tax on consumer purchases. It is added on to the purchase price of a product and paid by the consumer, you, each time you make a purchase.

  • ||

    What Robert means is that the VAT when implemented would tax money that he has already paid income taxes on that he's saved for his retirement (i.e. Roth IRA). He'd be getting taxed twice. I agree with him wholeheartedly that it's wrong to have actually saved money and done the right things, then have people come back again with hands out because you're the only guy left with blood to suck.

    That said, whatever we do that might stand a chance of working will probably really suck for many of us. We've spent the last 60 years or so digging ourselves into a huge hole. Getting out will take a lot of sacrifice and pain. Frankly I doubt very seriously we will have the ability to do it.

  • Jeff Perren||

    "It's certainly not ideal, but if no one really wants to cut spending, what the hell else do you do?"

    If no one wants to cut spending (not true, but for the sake of argument), then to hell with everyone. Let the Federal Govt crumble. Who needs 'em?

  • ||

    What's most interesting to me is the focus on the VAT, versus the sales tax. It seems that a VAT is much more challenging to enforce, has weird economic effects along the supply chain, and offers no additional benefit. Why not just institute a national sales tax? Why is everyone talking about a VAT?

  • ||

    CUT ENTITLEMENTS.
    IF YOU LIKE TO EAT, DRINK, HAVE A ROOF, CLOTHES , A CAR, A TV.....................GET A EFFFFFFFFFFFFFING JOB OR DIE.

  • ||

    OBAMA, PELOSI AND REID LIED.....
    YOUR JOBS DIED..........
    NEXT IS YOUR LIFE SAVINGS AND YOUR FREEDOM.

    HOW'S THAT FOR CHANGE???

  • ||

    VOTE EVERY BUM OUT.....SEND A MESSAGE.
    IF YOU DON'T SUPPORT THE CONSTITUTION IN ITS ORIGINAL MEANING GET OUT OF "OUR HOUSE"

  • Jeff Perren||

    "What if [the Federal] government default were a week away and there wasn't enough short-term spending to cut,' he wrote. 'Would you consider a VAT then? I hope so. How far back toward the present will you go in considering a VAT?'"

    I would hope not. If things are that bad then let the Federal Govt run out of money and stop its activities for however long it takes. Since when is the Federal Govt 'too big to fail'?

    There would still be 50 state govts and thousands of local ones, including courts, police depts, etc.

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  • ปลวก||

    The same Bushama government I snuggily dream about taking money from my kids piggy banks in order to spread good chear all over the middle east every night....I would be peeing my pants in fear if I thought the government might default.

  • ran||

    Also get a chip implant and send both sons off to war in Afghanistan to hopefully be the first ones home in boxes it would be such a fucking great honor.

  • กำจัดปลวก||

    We've spent the last 60 years or so digging ourselves into a huge hole. Getting out will take a lot of sacrifice and pain. Frankly I doubt very seriously we will have the ability to do it.

  • gps coordinates||

    vat would help for out country and debt, like in europe, but i am not sure people would want more taxes.

  • Steven Curley||

    Things i have seen in terms of computer system memory is that there are technical specs such as SDRAM, DDR or anything else, that must match up the specs of the mother board. If the pc's motherboard is rather current while there are no computer OS issues, modernizing the storage space literally usually takes under an hour. It's one of the easiest laptop or computer upgrade treatments one can consider. Thanks for spreading your ideas.

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  • Thomas Hazelton||

    The trap is founded and Pelosi has verified an outstanding offer of political courage setting it.

  • ห้องน้ำ||

    There's more. Even if the government could credibly pledge VAT revenue to deficit reduction, a VAT would not even start to address our problems

  • europe travel guide||

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