I Couldn't Come Up With a Clever Headline About The VAT, But Here's a Really Interesting Debate About It

Over at AOL News, there's an interesting set of four op-eds looking at the Value-Added Tax, increasingly bandied about as a cure for what ails federal deficitis.

Reason columnist and Mercatus Center economist Veronique de Rugy reprises her recent column here regarding the VAT:

If advocates of the VAT are serious about fixing our current fiscal crisis, they shouldn't be asking for a VAT alone but for a VAT and a credible commitment (one that no one can renege on once the VAT is in place) to dramatically cut spending. Short of such commitment they can't be taken seriously.

More importantly, focusing on revenue mechanisms such as a VAT in deficit-reduction discussions misses the fundamental point that spending, not revenue, is the cause of our financial troubles. Looking for new sources of revenue moves our attention from what needs to happen now: slow or stop spending increases and reform entitlements, sooner rather than later. For all these reasons, I am against the VAT.

Whole thing here.

Read the three other pieces on the VAT by Ira Stoll, Donald Marron, and Henry Aaron and Isabel Sawhill.

Comments

[Nancy Pelosi]

Of course, we have to pass a VAT bill so that you can find out what is in it.

[Speaker of the House]

Once we pass the bill Americans will get used to it and they will love it!

[John]

The VAT is a horrible idea. First, they will never cut spending unless they just can't tax or borrow one more dime. Second, there is nothing "fair" about it. It would not replace the income tax as the fair tax advocates claim. It would just be put in place over the income tax. At best we would get some meaningless cuts to make it fair and sell people on the bullshit. But there is no way that a VAT wouldn't equal radically higher taxes.

Worse still, even if VAT did actually lower our tax burden, it is still a horribly oppressive tax. A VAT wouldn't cover everything. Certain things would be exampt to keep it from being too regressive. For example, in the UK, "food necessary to live" is exempt. Well what does that mean? A VAT would allow bureaucrats to get into every nook and cranny of our lives and decide through tax policy what sorts of behaviors to reward and punish. It would allow them to rule everything. You think people eat too much candy, then VAT the hell out of it. Don't like the clothes people wear, VAT the hell out of unapproved clothes and exampt approved clothes and so forth.

That is what is behind VAT. And that is why nanny state types have spontaneous orgasms in their pants when the subject is mentioned.

[John Thacker]

In fairness, a lot of what you say about the VAT is equally true about the income tax, which has no shortage of special rules and rewards and punishments, and plenty of government intrusion.

I'd be okay with a VAT replacing income tax, in fact. Not both, though.

ObThreadjack: Rasmussen says: Obama 42, Ron Paul 41 for 2012 President.

[Steff]

I'll say this... if the Republican establishment doesn't like him, that's a + in his column, not a -.

[John]

But since they are only taxing income, it is harder to use the income tax to control people. You can hand out benefits but you really have a hard time taxing something out of existence. But the VAT makes it much easier to do that.

Forget Ron Paul, the Obama would be lucky to beat Bush right now. No kidding

"Americans are now pretty evenly divided about whether they would rather have Barack Obama or George W. Bush in the White House. 48% prefer Obama while 46% say they would rather have the old President back."

http://publicpolicypolling.blo.....vided.html

[John Thacker]

But since they are only taxing income, it is harder to use the income tax to control people. You can hand out benefits but you really have a hard time taxing something out of existence.

You can create an enormous preference for certain behavior, though. The mortgage interest deduction (and ability to use that on home equity loans) has had a tremendous impact on behavior.

[John Thacker]

Bush running close is primarily a case of disaffected conservatives (Reps and Rep-leaners) who thought that Obama couldn't possibly be worse (or who were okay with a "timeout" for Republicans) changing their mind.

[John]

True. But it still says bad things that a large plurality of voters would say they would rather have back a guy who left office with approval ratings in the 20s. As bad as things were for Regean in 1982, no one was pinning for a return of Carter.

[Tulpa]

46% is way too big to be just conservatives. That's a shitload of independents pissed at Obama as well.

[John]

The fact that a gold bug with as much baggage and out of the "mainstream" views as Paul can get within a point of a sitting President, is not good for Obama.

[Rahm Emanuel]

Ron Paul. Isn't he the guy who puts out all those racist newsletters?

[.]

Nothing racist about those newsletters - try reading them.

[Rahm Emanuel]

Ah, but the people I'm out to convince ... do not read.

[Cosmotarian Overlord]

Not only don't they read, they are not even ABLE to read at more than a 4th grade level.

This means that words like "context" are just as relevant as the Greek to Chinese translation of the Illiad.

[Geotpf]

Rasmuessen's polls have been amazingly questionable in the past year or so.

Does everybody forget how badly Paul did in the primaries in 2008?

In any case, he's not going to run in 2012-he'll be too old.

[John]

Rasmussen has been ahead of the curve on the elections in New Jersey, Virginia and Mass. They also had Obama's approval ratings down before the other polls. And they were dismissed only to be later confirmed.

[John Thacker]

Rasmuessen's polls have been amazingly questionable in the past year or so.

They've been different from other pollsters in a pro-Republican direction (though there are other pollsters with similar Democratic biases), based on different turnout models.

However, they've also been more accurate. So perhaps we should be questioning the turnout models in the other polls, not Rasmussen's.

[Geotpf]

Ok, but how about he polls things that actually will happen. Obama is not running now-his numbers will rebound by the time for his re-election campaign, like Reagan's and Clinton's did. And Paul's not running, and even if he did, he would lose badly in the primaries like he did in 08. The chances of a Paul vs Obama matchup in 2012 with a Paul victory are basically zero.

[John Thacker]

Ok, but how about he polls things that actually will happen.

He does plenty of those more boring polls. This is useful for judging exactly how "fringe" Ron Paul's views are, and for demonstrating to Republicans that there is a way to win votes by moving in a libertarian direction.

[Tulpa]

Obama is not running now-his numbers will rebound by the time for his re-election campaign, like Reagan's and Clinton's did.

Or they could tank even further like Carter's and GHWBush's did.

[Barry O]

Yes. Pay no attention to those questionable polls. People love my policies.

[TrickyVic]

""I'd be okay with a VAT replacing income tax, in fact. Not both, though.""

I would be open to that too. But I think they want to do both, which would be very unpopular. Expect "dire" and "urgency" to be the buzz words from the Obama admin.

[Slim Charles]

People don't know that Ron Paul wants to repeal the Drug War.

They actually like that Piece of Shit!

[Slut Bunwalla]

VAT is not the same as the proposed Fair Tax.

[SIV]

If advocates of the VAT are serious about fixing our current fiscal crisis, they shouldn't be asking for a VAT alone but for a VAT and a credible commitment (one that no one can renege on once the VAT is in place) to dramatically cut spending. Short of such commitment they can't be taken seriously.

You can bet they'll promise spending cuts and tax "fairness".A VAT should be fiercely opposed under any and all circumstances.

[Steff]

I can almost hear them slobbering in Washington at the notion of a VAT. I also think that the US citizens wouldn't stand for it.

[JW]

I think you overestimate the public's ability to resist what their masters and their lapdogs in the press tell them that they need to do for the good of the nation.

Sure, there will be grumbling, but it will pass and eventually, gradual acceptance as "normal."

[Barry O]

That's what you also thought about national healthcare, right? You'll learn..

[The Other Kevin]

For a while I was optimistic that the idea of an impending economic day of reckoning would be enough to sober up our government. But now they've found yet ANOTHER way to kick the can down the road.

Putting money in the hands of government is like giving it to an immature 8 year old. They are going to spend it all on candy, and there is no chance any of it will go into their college fund, no matter what they promise you.

I am 100% certain that any VAT revenue will be used on new spending, and not a dime of it will be used for deficit reduction. Just look at the Social Security "trust fund". And at the state level, all the lottery money that was supposed to be used for education, and tobacco settlement money that was supposed to be used for health care. A VAT is like giving a drunk an open tab at the local bar.

[Xeones]

Short of such commitment they can't be taken seriously.

Were logic in play at all, this would mean no VAT, as everyone knows Con-gress is not credible in the slightest.

In the world we've got, however, we'll get some crufty VAT law that no one in Con-gress has read, or is capable of understanding.

[sage]

If the VAT passes I'm going to learn as much as I can about the underground economy: bartering, etc. One good thing about it though is that it may wake up the half of the country that doesn't vote.

[Tulpa]

Not if they start it out at 0.5% or so and gradually increase it over the course of a decade.

[Geotpf]

Here's how you balance the budget: Cut the size of the military in half and legalize (and tax) drugs. There, I've balanced the budget. Wasn't that easy?

[John]

The military is only $500 billion. Cut it in half and you only get $250 billion savings. Now there is a lot of drug tax money out there. But it remains to be seen how much of it we could actually collect.

Sorry Getpf, but some of your liberal ponies are going to have to be slaughtered.

[Geotpf]

The actual military budget is actually closer to a trillion dollars a year.

http://en.wikipedia.org/wiki/M.....ted_States

How about we throw in eliminating farm subsidies?

[John Thacker]

The actual military budget is actually closer to a trillion dollars a year.

If you include pensions and foreign aid, interest on the debt for past wars, the entire State Department, etc.

We could only cut most of those now by developing a time machine. Sure, I'll grant that cutting defense now could save on those 20+ years in the future, though.

[John Thacker]

How about we throw in eliminating farm subsidies?

Love to. The people voted against doing that, though. Obama ran on preserving farm subsidies and tariffs much more explicitly than he ran on an individual insurance mandate or taxing high end health plans (which he ran against).

[Ron L]

Geotpf|4.14.10 @ 11:31AM|#
"The actual military budget is actually closer to a trillion dollars a year.
http://en.wikipedia.org/wiki/M.....ted_States"

These are the sort of "data" which prove socialized medicine is superior.
Geotpf, let's be honest: Those are lies, nothing else.
Either you know it and hoped no one would notice it, or you should know it.

[Zeb]

Did you read the linked article at all? Care to point out any specific lies? The wiki article seems pretty accurate and factual.

[John Thacker]

The wiki article seems pretty accurate and factual.

Factual, yes. But as I noted, you're including pensions and foreign aid, interest on the debt for past wars, the entire State Department, and several other things that aren't current military spending.

[TrickyVic]

The State Department should count.

Our diplomats are not really part of the war effort. They exist when war doesn't. But the cost to keep them secure in a war zone is fair game.

[Ron L]

Yep, and the defense budget should be included under entitlements:
The military protects the national treasury which hands out all that dough, so....

[cynical]

So, you're saying that we cut "defense spending", specifically by cutting back on entitlement programs, which then means the military doesn't have to spend effort on protecting them.

It's not any worse than the logic Democrats used to pass HCR, I guess.

[Ron L]

What John Thacker said. Including a "fact" in the wrong column of the accounting makes it a lie.
It may well be a fact that I blew $5000 on a poker game; calling it a "business expense" is a lie.

[John Thacker]

Cut the size of the military in half and legalize (and tax) drugs. There, I've balanced the budget. Wasn't that easy?

The military is an enormous line item in the budget, and shouldn't be exempt from cuts, but you could eliminate the military spending entirely and we'd still have a $800B deficit this year.

You would have to raise as much in drug taxes as, e.g., people making over $200K pay in income tax in total.

[Zeb]

Don't forget the savings from not fighting the pointless drugwar.

[Ron L]

Geotpf|4.14.10 @ 11:16AM|#
"....and legalize (and tax) drugs...."

Which is the reason drugs will become legal; ignoring the principle involved.
And while legalizing drugs is a good idea, it's a bad idea in this case: For every X increase in taxes, the government spends X+Y.
Adding taxes will add to the deficit, period.

[Slim Charles]

This does not make sense.

The government will spend as much as it can get away with.

We need budget rules--hard rules--to curb spending.

[Ron L]

Slim Charles|4.14.10 @ 12:31PM|#
"....We need budget rules--hard rules--to curb spending."

Government 'hard budget rules' are every bit as believable as a junky's promise to quit.
They'll be honored until the next 'my district must have a new airport or die' "crises".
The only way to cut spending is to cut taxes; history says nothing else.

[dave b.]

I'm for the Lew Rockwell plan.

[P Brooks]

My major objection to the VAT is this: why does it have to be so fucking complicated? Why levy the tax at a bunch of different points, when it all gets passed along to the end user, anyway?

If you're going to have a consumption tax, just have a simple, straightforward sales tax.

[std disclaimers apply]

[Cosmotarian Overlord]

Complicated is good...it makes it easier for us to make seemingly minor changes that can benefit those we favor. This makes it easier to fuck the masses and payoff the powers that be without having petty cash change hand. Direct transfer payments are soooo old fashioned. We like to use those to create flase enemies for the right winger to point too...while the real master are gettign away witht he real plunder.

Pay your taxes slaves.

[The Other Kevin]

It's complicated because it's easier to hide that way. If you see a line item on every receipt that lists both state and sales tax, you'd get pissed pretty quickly. But with a VAT, the price of every item on the shelf goes up, and you don't know how much of the price is attributed to the VAT. Out of sight, out of mind, don't you see?

[x,y]

STD disclaimers? Is that something you get when ordering hookers?

[wesley]

But the VAT will be a voluntary tax!

[Warren]

You want to increase revenue? Legalize drugs.

[John]

Legalize drugs and allow drilling on public lands. That would produce a lot of money. But you know what, I don't want the sollution to be raising more money. I want the sollution to be spending less.

How about legalizing drugs, allowing drilling and still cutting the hell out of spending? Then maybe we could pay off some debt or horror of horrors lower the tax burden.

[TrickyVic]

"" I want the sollution to be spending less.""

That's necessary. You can't fix money problems with money, you need a change in behavior. Something neither one of us will hold our breath for.

[John Thacker]

That would increase it some. But unless you think that drug tax revenue would be about as large as total individual income tax receipts, it's not a solution by itself.

[Slim Charles]

Really?

I'm all for freedom. And I like drugs.

But we only take so many drugs a year. And we'll only pay up to a certain amount of taxes on them.

OTOH, every little bit helps!

[Gabe]

Pass the VAT, get the collapse over with. Our public and our politicians have been infected with several infections(ideas) that can destroy our host organism(our civilization)

The critical component of our civilization is it's instrument of expansion which is private property. The idea that is destroying our instrument of expanison is the idea that civilization can be made better by plundering some parts of private property and having mortal men divy up the private property in certain ways that will improve things for "society"

The political fights and arguments we put up to fight these ideas amounts to trying to fight of a serious painful infection with aspirin...yes the infection is not quite as painful when we take the aspirin and it can make us feel better for a few hours, but then the bacterial infection comes back even stronger and attacks more of our body(free-markets caused the problems we currently have, we need more collectivism, more taxes, more attacks on private property....comes the call from the infecting bacterial hordes).

Can we persuade the bacteria that they are wrong and misunderstand the laws of economics? never...their entire life force is predicated on being a parasite.

The only hope is to give up all the ground they want...give them complete control as quickly as possible, they will kill some of the segmets of our civilization to be sure...but hopefully it will be so quick that the parasites themselves suffer....after having several hosts die they realize they are leaving most of their families behind in dead corpses...if they want to have longer happier lives they will adjust and figure out ways to not kill the hosts so quickly. They have to kill enough so that some of the hosts will be more willing to study and understand the real basis of civilization(private property).

Until people in our civilization have afirmer grasps of what made our civilization great (and what did not) we are in for a lot of sick times....people are too dumb to study this now...hings are too good...a culling is in order...nature demands it...pass that VAT...let the culling begin.

[John]

Nice in theory, but places like Cuba, North Korea, China and even Europe prove that you can linger along as a high tax, oppressive, government ridden hell hole for a long time. Civilization takes a lot more than that to kill. Hell, look at the Roman Empire, they have confiscatory tax rates, debased currency, huge welfare class and the whole lot for hundreds of years before the thing finally died.

[Lost_In_Translation]

So what your saying is...we need Mongols and Visigoths.

*retreats to lair to build barbarian horde*

[Gabe]

true but many people who have the economic theories right and understand what civilization is built on particpate in international asset markets and speculate on what is happening...passing of a VAT and carbon tax etc will create more winners out of this class as they bet correctly ont he big moves and they will then have more power to spread the correct information out of self interest.

Hell look at your example of China...they bottomed in the cultural revolution...at least they are improving now, I'd rather live on the upswing than live the rest of my life on the downswing...the tricky part is to avoid extermination here during the downswing. If it happens quickly I like our chances better.

[John]

there will always be people who are super wealthy and walk away winners. But that doesn't help the rest of us. And if "bottoming out" means something like the cultural revolution, no thanks, I will take my chances with stagnation.

[Surly Chef]

And it still took huge grain shortages and successive waves of marauding Goths, Visigoths, Vandals, Huns, Lombards, etc, to finally end it.

"and accordingly all experience hath shewn that mankind are more disposed to suffer, while evils are sufferable than to right themselves by abolishing the forms to which they are accustomed."

Yeah, Jefferson.

[Tulpa]

places like Cuba, North Korea, China and even Europe prove that you can linger along as a high tax, oppressive, government ridden hell hole for a long time.

Not when your population is used to being wealthy you can't.

[P Brooks]

You want to increase revenue?

No.

[JW]

Fuck. No.

[spambot]

Boy nothing gets consumer confidence and spending up like putting massive taxes on things! Lord it is almost as if they are trying to fuck it all up on purpose.

[John]

They don't think it can be fucked up. They are completely ignorant of economics and think the economy runs on magic. They really have no idea that they could damage it much less kill it.

[spambot]

Sadly we may get to find out the answer.

[Rich]

You can't kill it! (Props to Warty.)

[happybirthday.]

fucker.

[cmace]

With the VAT you can convince people its really the businesses paying the tax.

[P Brooks]

With the VAT you can convince people its really the businesses paying the tax.

Well, yeah.

Just as people want to see corporate income taxes raised, to "capture" those huge unfair profits.

[Rich]

Here's a nightmare for y'all: VAT paired with national ID, enabling the wealthy to pay their fair share while cutting the poor additional slack.

[Barry O]

That's right, Rich. Stick it to the man. Good boy.

[Rich]

Just doing my part to stimulate the economy.

[Isaac Bartram]

Of course penalties for failure to have a national ID card will fall dis
proportionately on the poor, thus enabling the "progressives" to exercise the true contempt that they have for the poor while pretending to help them.

[P Brooks]

How about we throw in eliminating farm subsidies?

That's especially humorous, considering CNBC did a little segment about how the poor dairy farmers are all going broke, and they need bigger and better price supports.

One of those dopes actually *almost* said out loud that price supports are specifically designed to transfer wealth from consumers to producers.

[Mike M.]

A "credible commitment to cut spending"? You've got to be fucking kidding me. The idea that this administration and Congress would ever give a "credible commitment" to cut spending, much less that one could be believed, is so far beyond laughable I don't even know where to begin.

[Gabe]

What if they swear on the bible? you know like how we protect the constitution.

[Tulpa]

Yeah, nothing short of a constitutional amendment is going to make me trust them. And that's not going to happen.

[cynical]

True, if it's in the Constitution, they have to do it.

*Snicker.*

[JW]

If advocates of the VAT are serious about fixing our current fiscal crisis, they shouldn't be asking for a VAT alone but for a VAT and a credible commitment (one that no one can renege on once the VAT is in place) to dramatically cut spending. Short of such commitment they can't be taken seriously.

They aren't serious and there is no reason to take their promises to cut spending seriously.

[?]

My major objection to the VAT is this: why does it have to be so fucking complicated?

Precision rewarding of politicians' friends and campaign contributors, and precision punishment of everyone else. VAT rules are like enemies lists in the form of product definitions; you can trace quirks in the legal language to who paid for it (and who didn't). So they're a fucking mess. They can't be otherwise. Even if a VAT displaced the income tax, it's a change for the worse.

Instead we'll get way worse. It's not even about taking more money from us. A narrowly exempted sales tax would do that far more efficiently. The feds are selling tickets to loot the wreckage. Of us.

[Warty]

You could have gone with a joke about the FEV vats.

[Cosmotarian Overlord]

It seems all the opposition to VAT is due to some paranoid conspiracy theories here. You really think the government and EVRY leading economist is in on a conspiracy to trick you guys into giving up more money? It is completely irrational of you people. All the experts agree that the VAT is the most efficient and fair way to raise the money we need to run this country.

This is a perfect example of how the anti-science conspiracy nuts will destroy our civilization.

[Hazel Meade]

AOL still exists????

[smartass sob]

Yes ma'm!

[JW]

[shwerrrrr-werrrrr-werrrrrr-ding-shwerrrrrr-bading-bading-schwerrrrr-ba-DOM]

[Barry O]

The nice thing about the Value Added Tax proposal is that it won't apply to my Wall Street masters as they add no value to society.

[Draco]

Since we needed an amendment (#16) to give the federal govt the power to levy an income tax (rightfully recognizing that they had no constitutional enumerated power to do so prior to that amendment), where are the proposals to amend the constitution to impose a VAT?

Or will our overlords just leave that to the Supreme Court to decide, as they've been doing lately, if we're to believe a certain Congressman (who said in effect "we just make shit up and leave it to the courts to decide whether we can get away with it.")

[John Thacker]

where are the proposals to amend the constitution to impose a VAT?

Don't need to. Article I, Section 8:

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

A VAT is a form of excise tax. It is not a direct tax, so the clause in Article 1 Section 2 that was modified by the 16th Amendment does not apply:

Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers, which shall be determined by adding to the whole Number of free Persons, including those bound to Service for a Term of Years, and excluding Indians not taxed, three fifths of all other Persons.

Note that that clause does effectively prevent a federal tax on land.

[Draco]

Ah, it just so happens that this European tax scheme was crafted to be fully consistent with the US Constitution!

How lucky for us!

Of course, I'll retort that even the income tax, and all of the other federal taxes we have, aren't constitutional since they aren't used for the narrow purposes laid out in the constitution (food stamps are welfare alright, but not The General Welfare). But we know what weight arguments carry with the overlords, especially the Great Robed Ones who tell us what the constitution means.

[R C Dean]

The VAT is a progressive's wet dream for three reasons

(1) It can transfer a shitload of money from people to the State.

(2) It is a hidden tax to the consumer/voter/citizen.

(3) It can be endlessly gamed for social engineering and the delivery of benefits and preferences to friends and supporters.

Of course, it would destroy whatever illusory recovery we are experiencing, so if the Dems do hold onto Congress this fall and pass a VAT, they can kiss the 2012 elections good-bye.

[creech]

VAT - one more swipe at those who act responsibile and save for the morrow.
Save for retirement, pay income tax on all the dividends and cap gains that were re-invested in your mutual funds and then, when you were looking to spend your savings tax free, you get hit again with VAT.