VAT
Today, the National Retail Federation released a study by Ernst & Young and Tax Policy Advisers that analyzes a 10.3% narrowly based "add-on" value added tax to reduce the deficit by 2% of GDP. It estimated a $2.5 trillion reduction in retail spending over the next decade and an initial loss of 850,000 of which 700,000 would be lost permanently. That's the kind of scary analysis you want if you want to kill a proposal. I would note that any federal tax increase of 2% of GDP would have similar results, although with less impact on the retail sector.
Here's what President Obama said on CNBC yesterday in an interview with John Harwood:
"As the night follows the day, VAT follows health care reform." That's how Charles Krauthammer started his Washington Post op-ed yesterday. He blissfully implies Uncle Sam can flip a switch and collect a trillion dollars over 10 years for every percentage point of VAT, "the ultimate cash cow." I beg to differ.
And he says in National Journal that a value-added tax is on the horizon.
There's nothing really new in Clive's column. Bruce has been saying that a VAT is logical for a long time. And among many others, I've been saying that the deficit isn't just a spending problem.
But the fact that Clive is now willing to go where others have boldly gone before is an important indication that the public debate is now changing and that a tax increase is becoming a topic for polite conversation. It might not yet inevitable but it's definitely becoming more acceptable.
It's always odd to get into a simultaneous fight with someone on the left and someone apparently on the right, but I have to respond to two commenters to my post on Greg Mankiw's proposal for what Republicans could bargain for if they actually wanted to engage on the issue of deficit reduction.
JakeCollins thinks it's appalling that I would support a value-added tax or VAT, one of Mankiw's proposed trades, because it "cuts taxes on the rich and raises them on the middle-class and the poor." Why, he asks, would liberals favor that?
I'm not saying liberals necessarily do favor a VAT. I just said I am a comparatively liberal person, and I think it's a good idea. Note, by the way, that the most rabid opponent of a VAT is the Wall Street Journal editorial page, which is righteously right-wing.
But the real point is this: don't be dogmatic.
