Taxes

VAT Pack? Some Republicans Support Value Added Tax

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Rat pack!

The Hill reports bipartisan support for a value-added tax:

The idea of a value-added tax (VAT), attacked by national Republicans ever since it was floated by a White House adviser, has some GOP supporters in Congress.

Five Republican House members are co-sponsors of a bill by Rep. Bill Pascrell (D-N.J.) that would impose a border tax on imports similar to an importing country's VAT if the U.S. government couldn't negotiate a way to cut trade imbalances. In the Senate, George Voinovich (R-Ohio) has suggested that replacing income taxes with a VAT could be one way to streamline the tax code.

"I don't know whether it would [be more efficient] or not," Voinovich told The Hill. "All I'm saying is that we shouldn't just say it's a bad thing."

Voinovich was one of just 13 senators to vote against a "sense of the Senate" resolution offered by Sen. John McCain (R-Ariz.) in April calling the VAT "a massive tax increase that will cripple families on fixed income and only further push back America's economic recovery." Every other Republican and most Democrats voted for the non-binding resolution.

Yesterday, The Daily Caller reported that the president's fiscal commission will almost certainly recommend raising taxes:

Leading Democrats on the commission tried during the first week of meetings to finesse their way toward a discussion of what they consider inevitable — by arguing that any tax hikes would be "pro-growth."

"If we can put forward some practical proposals that control the rate of spending in the future and that raise revenues in a pro-growth way, I think we'll get a hearing in the Congress," said Alice Rivlin, a former White House budget director for President Jimmy Carter, who is one of 18 commission members.

If you didn't read the word "tax" in the previous sentence, that's because most who favor raising taxes don't like to use the word. Instead they use "revenue," as in the money that comes to the government from taxpayers.

Commission co-chair Erskine Bowles made clear last week that any recommendations he puts forth or supports by the Dec. 1 due date will include higher taxes. The three working groups that he set up to meet weekly over the next several months are focused on mandatory spending, discretionary spending and revenue reform.

Any solution is "going to involve revenue, and we have to face up to that," he said. Bowles, a former White House chief of staff to President Clinton, also followed Rivlin's tack, arguing that any tax increase would have to be good for the economy, business, job creation, etc.

Elsewhere in Reason, Veronique de Rugy called the VAT "the wrong policy at the wrong time."

NEXT: I'm Just Asking Questions, Part 23

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  1. “George Voinovich (R-Ohio) has suggested that replacing income taxes with a VAT could be one way to streamline the tax code.”

    So a consumption tax as opposed to an income tax? Go on, I’m listening.

    1. I’ll post my commentary on your website.

    2. me too. As soon as the 16th ammendment has been repealed, we may begin debate on the VAT.

  2. The idea of a value-added tax (VAT), attacked by national Republicans ever since it was floated by a White House adviser, has some GOP supporters in Congress.

    Shocked, I am.

  3. “In the Senate, George Voinovich (R-Ohio) has suggested that replacing income taxes with a VAT could be one way to streamline the tax code.”

    If we were living in some utopia of logical thinking, this might make some sense. In our real world there is no way income tax is ever going away, so even talking about a VAT in this way is dangerous, because we are more likely to end up with both VAT and income tax instead of one or the other.

    1. I guess you could add language that the law would only take effect upon repeal of the 16th Amendment, but I think that might be unconstitutional.

    2. Yup. They will defend the income tax by claiming that the rich can afford both income tax and VAT. You know, because they are rich.

      1. They’re rich until Obama decides that — you know, some people have made enough money.

      2. You know, the rich should be absurdly popular in this country for funding all of this crap. Strange how that isn’t the case.

  4. …a border tax on imports similar to an importing country’s VAT if the U.S. government couldn’t negotiate a way to cut trade imbalances.

    This is economic stupidity.

    1. This is the Obama administration. Stupid is their go-to policy.

  5. a bill by Rep. Bill Pascrell (D-N.J.) that would impose a border tax on imports similar to an importing country’s VAT if the U.S. government couldn’t negotiate a way to cut trade imbalances.

    That should help.

    ——

    arguing that any tax increase would have to be good for the economy, business, job creation, etc.

    Taxes were 97% before that maniac Kennedy lowered them, and the economy was booming. If we raise taxes, the economy will grow like wildfire!!!

  6. Pro-growth Democrats? Now there’s an oxymoron.

    1. Growth of what? Certainly they are in favor of growth of government.

      1. Well, that’s a given, Cajun.

  7. So how long has the Reason Gear Girl been clean and sober now? Couple of weeks?

    1. The Destroyer’s sperm is a mighty addiction cure.

    2. Ever since rctl stopped posting here.

  8. Maybe it is because I am untrained in the economic arts, but I don’t see any positives to the value added tax. The only direct, and intended consequence of enacting one would be the lowering of the standard of living.

    Maybe some people, even ‘smart’ economists, are myopic enough to believe that a tax on business is not ultimately born by the populace at large. Or maybe they aren’t being ignorant, but instead are disingenuous, knowing full well the outcome of their policies.

    If your goal was to have Americans live like Europeans, then vat seems perfect.

    And if anyone posits that a vat would replace income and other taxes, then I could only view that as willful ignorance.

    Like I said, I am not an economist, and if you can think of positive outcomes of real world vat implementation I would be open to hearing them.

    1. The VAT subsidizes my industry. Without the VAT, my job would’ve been outsourced to India or China LONG ago.

    2. Stop making sense.

    3. I’m a Business Economist (I learned applications, not esoteric bullshit).

      The VAT is a much better system of taxation than the income tax. You’re already well on your way to understanding why, because you recognize that a tax on business is ultimately paid for through higher prices to consumers; this is an ’embedded’ tax.

      The income tax is a pain in the ass for compliance and is relatively easy to evade (offshore accounts, earnings from selling drugs etc). This inefficiency in collections results in higher rates for the people actually paying taxes. Similarly, “tax credits” targeted to specific industries ultimately shifts the tax burden to other industries. The income tax code makes it very easy for congresspeople to buy favor with key industries by giving them tax credits.

      The least damaging tax has the largest tax base, i.e. everyone pays it at an equal rate. Consumption taxes (like VAT and FairTax) extend the tax base to people whose income is not easily taxed, and also happen to be voluntary (Starve the beast? Grow your own food).

      If you could replace all other taxes with a consumption tax (which is exactly what the FairTax proposal does), you would have ONE of the least damaging tax systems possible (provided you can keep people from complicating it and adding exemptions). You improve efficiency with a larger tax base and reduced compliance costs (including the inefficiency of embedded taxation). As a bonus, taxing consumption encourages people to Save/Invest, increasing our long-term growth potential.

      Obviously this relies on the system not be being hijacked. For the record, the least damaging system of taxation is a Land-Value Tax, but implementing it is complicated on a scale larger than counties/states.

      1. Such as, it requires a constitutional amendment?

        Ideally, the feds should drop both income and excise taxes and levy taxes directly against the states, proportional to their representation in Congress.

  9. They have a Carter administration budget director working on this? Well, who can blame them for wanting to recapture that magic?

    As Ragin Cajun points out, a “border tax similar to a VAT” is, of course, not a VAT, but rather a tarrif.

    I’ve never been convinced by the arguments for the superiority of a consumption tax anyway. Seems to me that that would inherently be more of a drag on economic activity than an income tax. I suppose it would shift the burden of complex tax preparations from consumers to businesses, but only if it truly replaced the income tax, the chance of that not merely being “fat”, but obese.

    1. Tax things you want less of – so why income?

      1. Reasonable argument, but I don’t think we especially want less spending either, given that it’s the basis for production and employment.

        1. Not necessarily. Investment can generate employment too, and is a hell of a lot more productive in the long run than consumption.

        2. That’s getting it backwards. Consumption is the end, production and employment are means. If we had no need to consume, production and employment would be irrational uses of our time.

  10. The only direct, and intended consequence of enacting one would be the lowering of the standard of living.

    For *you* maybe; the folks at AFSCME will come out okay.

    1. They make those anvils and rockets, right?

      1. No, that’s ACME, and I’ve had a long-running battle with those bastards. The last pair of jet-powered roller skates I bought, WAS my last pair – I’ve been in a wheelchair ever since.

    2. the folks at AFSCME will come out okay.

      They always do, don’t they?

  11. Yeah, this VAT commission is a complete joke. The fundamental principle undergirding the whole thing is the idea that the welfare state has to be maintained at all costs.

    Sure, there will be some meaningless non-binding blather about controlling spending, all of which will be completely ignored by Congress.

    1. Don’t forget the warfare state too! We need both to keep the government growing every year.

      1. You need to have wars to increase our surveillance and law enforcement capabilities. Without these aspects we can’t really collect the taxes very effectively.

  12. With all the loans the government is taking out(which are completely neccessary) we will need a VAT to fund the interest payments. This is the only way to have true economic growth.

  13. If you were to replace income tax with a VAT, it would be the same problem as with a national sales tax. It will dramatically increase the cost of buying new goods, which in turn creates a huge market for second hand goods. e.g. No sales tax when you buy something off Craigslist (at least not in my state, and not enforced elsewhere). The govt will see second-hand goods as an untapped tax base. In short order the new tax code will be just as complex as the old as the govt tries to tax every bake sale, garage sale, and craigslist ad in the country.

    Furthermore, the govt would never abandon income and capital gains taxes altogether, its far to politically popular to tax the rich.

    Finally not matter what kind of tax reform we get, there is nothing to stop the govt. from over-spending and over-promising. So on a long enough time line, the overall tax rate goes up to pay for all those govt. expenditures.

    So in the end taxes go up, and form 1040 gets more complex.

    1. If the black market grows then we need to increase our surveilance capabilities. It sure is lucky that we have been ramping those up in our efforts to fight Terror the last decade!

      1. At the very least, this will hamper the rich underground music industry largely dependent on second-hand goods and under the table payments as it is. I am so glad we destroyed our civil liberties so we can finally make sure aspiring emo-punks can’t afford used equipment. Those bastards have had it too easy for too long.

        1. If the artist will support our cause we may let it slip, but you will owe us a favor.

    2. The rise in retail prices from a consumption tax would be offset (partially or completely) by lower embedded taxes. There is no solution to keeping the government from reaching further, so I won’t touch on that. You’re right that a retail tax would result in more people buying second-hand items, but that could be a huge political benefit: spin it as reduced environmental harm from heavy industry, like petrochemicals for water bottles. All else being equal, lower consumption -> higher investment -> higher long term incomes -> Singularity.

  14. George Voinovich (R-Ohio) has suggested that replacing income taxes with a VAT could be one way to streamline the tax code.

    Tell me George, how long after the imposition of a VAT will it take congress to start granting exemptions/reductions for favored businesses/industries. How long before congress starts granting rebates to lower income people who are gonna get fucking hammered by this?

    I estimate less than one congressional session. Of course I’m not an established professional politician like yourself so naturally I would like to hear your thoughts on the matter.

    If you want to “streamline” wealth extraction from the public you can start with the individual and corporate income tax laws. I suspect that you and your colleagues don’t have the stones for that.

  15. I “love” the fact that Democrats like Erskine Bowles (Bowels?) think that there can be tax increases that are “good for economy.” And that they think that they are just the sort of people who can concoct or discover such magical taxes.

    It’s sort of like looking for a kind of rape that’s good for the woman.

    1. It’s sort of like looking for a kind of rape that’s good for the woman.

      You are going t wake the STEVE SMITH with statements like this.

  16. Well, it’s a cinch that none of these turds have ever read Bastiat or Hazlitt.

    1. They’ve certainly read Keynes…

  17. I can’t see the Feds ever getting rid of the personal income tax. To much of their activities use it as a tool for invading everyone’s privacy.

  18. that raise revenues in a pro-growth way

    Do they really believe that doublespeak, or are they just cynical about the intelligence of the public.

  19. Politicians are like monkeys locked in a test cage, but instead of conflicting COCAINE and FOOD buttons, they are forced to chose between VAT and FISCAL RESPONSIBILITY. Any cynical, weary, libertarian predictions as to which button they will choose?

  20. ALL YOU FREE MARKET FUNDIES SHOULD ACCEPT THAT WE WILL TAX AS WE PLEASE! WE HAVE THE POWER, AND YOU ALL JUST HAVE TO BEND OVER AND TAKE IT!

  21. The value added tax won’t replace the income tax, I’m too cynical to think that VAT would do anything of the sort. It’s just another way for government to get more money to fund the things they feel will help us but only hurt us.

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