2010 April 18 Sunday
The VAT Tax Battle Looming

In order for the Leviathan to maintain its present bloated size new kinds of taxes (not just higher levels of existing taxes) must be enacted. So battles for the Value Added Tax and Carbon Tax are basically battles to ensure that the Leviathan can stay at its current expanded size and even grow. Since I do not want to see America become more like Europe (we already have Europe to act like Europe and need no further exampes) I am not keen to see either a VAT or a carbon tax enacted. Recent the US Senate voted against the VAT in a resolution and this great result disappoints Derek Thompson of The Atlantic.

The Senate overwhelmingly voted 85-to-13 on Thursday to reject the idea of a value-added tax in a resolution proposed by Sen. John McCain. All six of the senators on the president's bipartisan commission on the deficit -- three Democrats and three Republicans -- voted with the majority.

Sad. The resolution isn't even close to binding, and the VAT could live yet, but it's dispiriting that Sen. McCain would force the Senate to vote on this issue based on his emotional reaction to a Wall Street Journal editorial on the subject.

Goodie.

George Will argues that passage of VAT should only be done as part of a move to revoke the constitutionality of an income tax. I like this idea.

When liberals advocate a value-added tax (VAT), conservatives should respond: Taxing consumption has merits, so we will consider it -- after the 16th Amendment is repealed.

A VAT will be rationalized as necessary to restore fiscal equilibrium. But without ending the income tax, a VAT would be just a gargantuan instrument for further subjugating Americans to government.

The sovereign debt crisis of the 2010s is going to be used by the Left to try to solidify their gains in making the Leviathan bigger. The Right needs to follow Arnold Schwarzenegger's playbook in California where each year's budget crisis gets settled mostly with big cuts in spending. The crisis will hit with each oil price spike and recession that will knock down tax revenues and increase demands for unemployment and other welfare transfer payments.

People who have been living in California for the last 10 years know what it is like to live under a continual government debt crisis. You'll hear a continual drum beat of claims that spending must not be cut, that taxes must go up. Demand the opposite. If the crisis gets resolved with an expansion of the Leviathan then your disposal income is going to take a really big hit. Higher income taxes and VAT taxes on products and services will lower your living standard.

Share |      By Randall Parker at 2010 April 18 11:52 PM  Economics Tax Revenue


Comments
Bubba said at April 19, 2010 10:46 AM:

1) There's a real problem with raising tax rates when consumer debt levels are already so high. The middle and lower-middle classes are already spending most of what they make (if not more# and taking a larger share of their income via a VAT would push them over the edge and drive up bankruptcies and defaults, hurting lenders #not to mention retail#. I guess that's one way to stick it to the rich, but the economy would suffer. Furthermore, with the abolition of private sector pensions, individuals are now expected to save for retirement via 401#k) contibutions. Watch those fall. The result is that higher taxes would actually increase the number of people needing gov't aide, so in the end you're just pushing the problem around rather than solving it.

I'd argue that if there's any group on which the burden of budget balancing must fall it should be on the permanent underclass. We have been subsidizing them far too long, while at the same time importing millions of unskilled workers ro do the work that welfare cheats haven't had any reason to do.

2) From the very beginning of this mess, of Barack Obama's proposed "stimulus," it was always my belief that his real aim wasn't to stimulate the economy but to make sure that state and local governments didn't do what they tend to do during recessions - shrink. Obama wants to make sure that government at all levels gets bigger during the recession and continues to grow post-recession. The distribution of the stimulus, plus the requirements that states, to get aid, can't cut their own spending, validated that belief for me.

3) Eliminating the income tax would be a bad idea. Why is it that after three decades of extraordinary income redistribution towards the *richest* Americans, we now see efforts to shift the tax burden towards the middle? I guess it says how much power folks like Grover Norquist (Americans for Tax Deform), and David Koch (the Cato Institute) have over the GOP. Shifting tax revenues towards a VAT system is not going to incentives for congressmen to distort that system for the benefit of special interests. It will make it stronger, in fact, since individuals will no longer have a reason to complain about its complexity.

Good Times said at April 19, 2010 6:57 PM:

Thompson can go fuck himself. Like every other schmuck that supports higher taxes, he sure doesn't send in additional money on tax day. Now why would that be? And the sooner the US has shit going on like they did in Bishkek, the better. Assholes like him and Krugman, along with other liberals will either run for their lives or catch some lead.

sg said at April 20, 2010 2:42 PM:

"I'd argue that if there's any group on which the burden of budget balancing must fall it should be on the permanent underclass. We have been subsidizing them far too long, while at the same time importing millions of unskilled workers ro do the work that welfare cheats haven't had any reason to do."

Agreed.

The underclass is out breeding us to the point we will never be able to sustain it. Better just end it now. When the checks stop coming they will slow down the breeding.


In today's Wall Street Journal, "of 1,800 single men and women aged 18 to 29, more than 80% of both sexes said it was important to them to avoid pregnancy right now, yet 43% of those who are sexually active said they used no contraception or used it inconsistently."

The penalty is not harsh enough. We have been incentivizing bad behavior.

Also, we should eliminate the Dept. of Education. That is just a cash sinkhole. It doesn't help anyone. The jobs there amount to welfare for liberal educrats who should be flipping burgers. Several others could be eliminated as well. Dept. of Labor? Energy? etc.

All of those federal departments have either achieved their goals and are now obsolete or they have goals that cannot be attained like making all students equal and competent.

Matt said at April 20, 2010 7:17 PM:

I think our government will find it is increasingly hard to raise taxes without reducing its long-term income. Mankiw has an interesting take on this when he talks about per capita taxes in the US being average despite our lower tax rate (we have a higher gdp). Although its simplistic, I do believe we are starting to get to the flat part of the laffer curve. If you feel strongly about things like the VAT you might want to support fiscal conservatives in washington like this great candidate Ryan Brumberg (www.brumberg2010.com) I've been following.

Mercer said at April 21, 2010 9:52 AM:

"the Left to try to solidify their gains in making the Leviathan bigger."

What makes you think it is only the left that wants a big federal government. The GOP brought drugs for seniors and label any attempt to restrain Medicare spending as death panels. They are committed to the notion that the pentagon should be the policeman and social worker for the world. Many on the right are even denouncing Obama's plan to limit manned space flight.

There may be a few GOP members like Ron Paul who could balance the budget but the leadership has not had a budget plan that made any sense since 2003 when they cut taxes at the same time they voted for drugs for seniors and launched a war. I think a large part of the problem is believing that cutting taxes increasing revenue. When people buy that nonsense they don't care about spending discipline.

If the GOP insists on not raising taxes to pay for spending they support then the tax revenue will come from sources the Dems prefer. The new health law has a new Medicare tax on investment income. They could also have social security tax on investment income and eliminate the cap on earned income subject to FICA. The easiest way to raise money would be to stop passing annual "fixes" to the AMT credit.

I would prefer the budget be balanced through cuts in military and Medicare spending and a carbon tax. GOP leaning pundits talk about a VAT tax but if GOP politicians don't support it I don't see why Dems would pass it on their own when they can try to hit people making over 200k for revenue.

Kudzu Bob said at April 21, 2010 7:25 PM:

Why doesn't the government just raise all taxes on everything to one hundred percent and just get this farce over with? No more screwing around. In in the words of Gary Gilmore, "Let's do it!"


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