Sunday, April 10, 2005


While I'm sure that when the Republican party is humiliated and goes into hiding for a few years, Jim Henley and I will agree on little. But, right now I agree with him and more importantly agree with the arguments which gets him to the decision, something we probably won't do very frequently on economic issues.

The political reality is that any effort that tries to replace the corporate or personal income taxes with a VAT will leave us with a corporate income tax, a personal income tax and a VAT. The other reason to be against a VAT is the reason Yglesias is for it: it’s a relatively stealthy way to raise taxes a lot. If you don’t work in corporate tax accounting, you’re unlikely to recognize the increases for what they are. You’ll just notice that you’re either paying a lot more for every good and service you consume or (to the extent that the market forces companies to hold the line on prices and reduce profits) fewer people have jobs and your 401K is in the toilet.

No, if “we” “need” new revenue, let “us” be open about taking it. No need to add an entire parallel enforcement and calculation structure into the bargain, not to mention the fiscal and administrative fuss and bother for the proposed “advanced rebate” to the poor who would be hit hardest by any sales-based tax. In the meantime, paging Mr. Gramm and Mr. Rudman. Messrs Gramm and Rudman to the white courtesy phone, please.

Basically, any discussion of changes to the tax code have to begin with "revenue neutral" changes. That is, how do we play around with the tax burden keeping the amount of revenue we expect to raise as the same as current law. Debates about structural changes to the tax code need to be kept separate from debates about "tax increases" or "tax cuts."

As for the VAT itself, it's a very stupid tax unless we want to pump it up to Europeanish levels - lower than that, and a national sales tax would do the job. I'm not advocating a national sales tax, but it's a superior-yet-similar tax unless the tax rate is set at a high rate - a couple percent doesn't make the cut. And, Jim's comments on the added administrative burden of a new tax are correct.

Look, if we want/need to raise revenue we can do that easily. A loophole/deduction closing here and there, a point or two on various tax rates here and there can very simply raise quite large amounts of money. And, I'm all for "broadening the base, lowering the rates," something which in theory liberal economists like me and the Republicans in power should agree on, but don't because the Republicans in power are completely full of shit. There's no need to add on an entirely new and costly to administer tax.