Bruce Bartlett’s VAT Delusions

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.

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Weekly Political Humor

A cowboy named Bud was overseeing his herd in a remote mountainous pasture in Nevada when suddenly a brand-new BMW advanced toward him out of a cloud of dust.

The driver, a man in a Brioni suit, Gucci shoes, RayBan sunglasses and YSL tie, leaned out the window and asked the cowboy, “If I tell you exactly how many cows and calves you have in your herd, Will you give me a calf?”

Bud looks at the man, then looks at his peacefully grazing herd and calmly answers, “Sure, Why not?”

The man parks his car, whips out his Dell notebook computer, connects it to his Cingular RAZR V3 cell phone, and surfs to a NASA page on the Internet, where he calls up a GPS satellite to get an exact fix on his location which he then feeds to another NASA satellite that scans the area in an ultra-high-resolution photo.

The man then opens the digital photo in Adobe Photoshop and exports it to an image processing facility.

Within seconds, he receives an email on his Palm Pilot that the image has been processed and the data stored. He then accesses an MS-SQL database through an ODBC connected Excel spreadsheet with email on his Blackberry and, after a few minutes, receives a response.

Finally, he prints out a full-color, 150-page report on his hi-tech, miniaturized HP LaserJet printer, turns to the cowboy and says, “You have exactly 1,586 cows and calves.”

“That’s right. Well, I guess you can take one of my calves,” says Bud.

He watches the man select one of the animals and looks on with amusement as the man stuffs it into the trunk of his car.

Then the Bud says to the man, “Hey, if I can tell you exactly what your business is, will you give me back my calf?”

The man thinks about it for a second and then says, “Okay, why not?”

“You’re a Congressman for the U.S. Government”, says Bud.

“Wow! That’s correct,” says the yuppie, “but how did you guess that?”

“No guessing required..” answered the cowboy. “You showed up here even though nobody called you; you want to get paid for an answer I already knew, to a question I never asked. You used millions of dollars worth of equipment trying to show me how much smarter than me you are; and you don’t know a thing about how working people make a living – or about cows, for that matter.  This is a herd of sheep. …”

“Now give me back my dog.”

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