Thursday, April 22, 2010

Chart of the Day

Last week, the Administration seemingly mooted moving to a value added tax regime. Congressional Budget Office Director Douglas Elmendorf confirmed he's been getting "a lot of questions" about the VAT tax from Congress, likely meaning Democrats Nancy Pelosi and Kent Conrad. The Senate promptly and overwhelmingly disagreed--even Senator Conrad!

Proponents of the VAT stress its efficiency in generating revenue. Hence VAT's drawbacks: it encourages big government (even supporters call it a "money machine") and it's regressive (which some progressives acknowledge). Worse, it's pernicious, as an editorial in last week's Wall Street Journal detailed:
VATs were sold in Europe as a way to tax consumption, which in principle does less economic harm than taxing income, savings or investment. This sounds good, but in practice the VAT has rarely replaced the income tax, or even resulted in a lower income-tax rate. The top individual income tax rate remains very high in Europe despite the VAT, with an average on the continent of about 46%. . .

One trait of European VATs is that while their rates often start low, they rarely stay that way. Of the 10 major OECD nations with VATs or national sales taxes, only Canada has lowered its rate. Denmark has gone to 25% from 9%, Germany to 19% from 10%, and Italy to 20% from 12%. The nonpartisan Tax Foundation recently calculated that to balance the U.S. federal budget with a VAT would require a rate of at least 18%.

source: April 15th WSJ

And one more point: In Europe, this heavier spending and tax burden has also meant lower levels of income growth and job creation. From 1982 to 2007, the U.S. created 45 million new jobs, compared to fewer than 10 million in Europe, and U.S. economic growth was more than one-third faster over the last two decades, according to the Bureau of Labor Statistics.
VAT proponents promise offsetting tax cuts. Unlikely--as Reason magazine's Peter Suderman says, "think about how it might actually look after everyone in Congress--and all their associated interest group allies--got their hands on it." Pretty much how it worked in Europe, where they're 'trapped in a VAT' of rising rates and sluggish economies.

There's got to be better tax policy than "Europeans love it, and we love Europeans." Especially since it won't work here. Unless America, too, makes vacationing a human right.

(via reader Marc, Berman Post)


OBloodyHell said...

The so-called "Fair Tax" is a VAT tax. I do "somewhat" support the idea as defined, with exactly one non-negotiable codicil.

While the laws proposed regarding it calls for a complete repeal of the entire income tax code and dissolution of the IRS, the only way I would support it is IF and ONLY IF it were tied to begin functioning one day after the completion of the repeal of the Sixteenth Amendment.

Without that, you can wipe the lawbooks clean all you want, and the #$^@$^$&@ bastards in Congress will just find some excuse to restore it "for the duration of (insert excuse here)". And then you will have both in perpetuity.

Once a tax gets created, you can never, ever get rid of it. It is easier to separate a pack of starving Rottweilers from a lamb's carcass with your bare hands than it is to disabuse Congressbozos of their "right" to take your money and spend it on some pet project.

So whenever someone trots this one out -- and they will -- be certain it contains explicit language tying it to repeal of the 16th, or you will succeed only in obtaining the worst of both worlds.

OBloodyHell said...

P.S., I once made the above comment to one of the congressmen supporting it at the time. The reply was pretty much "let's pass it first and then we'll get to that after".

I didn't bother to argue the point.

Until it is directly connected to that repeal, they can osculate my posterior: "Not on ze left side, not on ze right side, but smack in ze middle."

Marc said...

Yeah, VAT would be okay if it were the only federal tax. Better to tax consumption than what we earn.

The 100th anniversary of the 16th Amendment is less than 3 years away. Ratified on February 3, 1913.

OBloodyHell said...

> The 100th anniversary of the 16th Amendment is less than 3 years away. Ratified on February 3, 1913.

It's never noted in school that it was sold as a "soak the rich" scheme, with the notion that only the Gotrocks would be paying it.

This notion, as well as the facts that the taxes that stoked the American Revolution were, all told, less than 5%, or that Americans currently pay more than 50% of their income in state, local, federal taxes, fees, and other folderol, doesn't seem to be important information for modern gummint skools to impute to their students.

BY the way, in the CBS VAT piece is hidden this little gem:

> Americans as a whole did not squawk when spending rose during the Bush administration, and in electing Barack Obama, they voted for bigger government.

Oh, REALLY? Cause I kind of remember Obama claiming he was on the side of fiscal conservativism... claiming that this sort of thing (Bush era overspending) just could not go on.

The MSMs gasp when one points that out:
"What, you tawt 'e wuz seryus 'bout dat?"

Obama, on the other hand, says:
"Ha! Bush was such a cheap PIKER! Watch me add a new ZERO to the deficit!"

OBloodyHell said...

Meanwhile, in the DC piece, is this gem:

> A so-called consumption tax would “create a balance” with European and Japanese economies and “could potentially have a substantial effect on competitiveness,” said Podesta.

Yeah, if your idea of "create a balance" is to lower US productivity to be more in line with that of the other seven of the big eight economies, sure.

And I'm, sure it will LOWER the US's competitiveness, so yeah, that's true, too.