I’ve known and liked Bruce Bartlett for more than 20 years, so you can imagine my dismay that he is now pimping for a value-added tax (VAT). I’m not sure whether his mind has been captured as part of a remake of Invasion of the Body Snatchers or if he’s just been hanging around Washington for too long, but his implication that it is possible to be a pro-market conservative while supporting a huge new tax to finance bigger government is absurd. Conservatives (not counting the big spenders who call themselves “compassionate conservatives”) share the libertarian goal of smaller government. And trying to achieve smaller government by raising taxes is akin to treating alcoholics by giving them keys to a liquor store. The VAT is a particularly bad idea because it would be a huge new source of revenue, as Bruce acknowledges in an article for Forbes.com:
Based on the experience in other countries, I estimate that a U.S. VAT could realistically tax about a third of the gross domestic product (GDP), which would raise close to $50 billion per percentage point. If we adopted Europe’s average VAT rate of 20%, we could raise $1 trillion per year in 2009 dollars.
Bruce makes the point that a VAT does not do as much damage, per dollar raised, as the personal or corporate income tax, but so what? That would only be a compelling argument if the VAT was used to eliminate other taxes. At the risk of pointing out the obvious, that’s not what Bruce is proposing. Interestingly, even though his core argument is that we should adopt a VAT to give the government additional revenue, Bruce tries to be all things to all people by mentioning that a VAT could replace other taxes:
Replacing the corporate tax with a VAT would unquestionably improve the competitiveness of all U.S. exporters.
Even here, though, Bruce’s argument is misleading. A VAT would have no impact on US exporters. All the benefits would occur only because the corporate income tax would disappear. Not that this matters since Bruce is not advocating for that position. He then continues to muddy the waters by citing Senator DeMint’s legislation, presumably to make it seem as if his plan is good by association.
Sen. Jim DeMint, R-S.C., introduced legislation (S. 1240) to establish a business consumption tax that is, in essence, a VAT.
There is a gigantic difference, of course, between Bartlett and DeMint. The Senator proposes to replace the internal revenue code, whereas Bruce wants to augment it. Bruce then whines that supporters of limited government atack his plan for facilitating bigger government, but he offers no refutation. But that is no surprise since Bruce is throwing in the towel, saying we should have a VAT since it is hopeless to fight against growing government.
…whenever I suggest the idea of a VAT for the U.S., I am attacked by supply-siders and assorted right-wingers. The other day my friend Larry Kudlow criticized me for wanting to “Europeanize the American economy.” Their concern is that the VAT is a money machine that will lead to higher taxes and bigger government precisely because it is such a “good” tax. I myself held this same view for many years. But eventually I decided that it was stupid to oppose something because of its virtues. Opposing a VAT because it’s too good is like breaking up with your girlfriend because she is too beautiful.
The last line is clever, but ridiculous. The more appropriate analogy is that you are married to the Creature from the Black Lagoon, and Bruce wants you to take the Wicked Witch of the West as a second wife.
If the VAT taxis so bad why does Europe have it as well as Thailand and others?
[…] of Democrat fundamentals, it seems as though Bartlett still considers himself a conservative. Standing behind the U.S. VAT tax, he quickly met opposition for an attempt to promote a big-government finance tax while asserting […]
[…] decades and he’s a fun guy to hang out with, but he’s gone hard to the left in recent years, pimping for a VAT and urging GOPers to sell out on health […]
[…] decades and he’s a fun guy to hang out with, but he’s gone hard left in recent years, pimping for a VAT and urging GOPers to sell out on health […]
Now, your last line tops it off by far. It’s a shame to see gov’t expanding across the board in all countries, not just the USA.
An economic catastrophe which really should have exposed gov’t bureaucrats as the wicked influence has done exactly the opposite: vilifying free markets and glorifying the wonders of government intervention.
It’s an interesting conundrum. They provide the problem and yet they are requested for a solution. I thought such a contradiction only lived in Orwellian dystopias.
I think to some extent it boils down to “the appearance of doing something”.
Where a free marketeer would allow things to shift and settle accordingly, letting huge
companies go bust and labor to reassign appropriately, the interventionist’s argument is more sweet and palatable.
This is a golden moment if you’re an interventionist. Since things are in turmoil, there is a huge sense of necessity and urgency. Pitt put it well that “necessity is the plea for every infringement of human freedom.”
Well said, Bill, well said.