People are really talking about this VAT thing

There’s a certain buzz in the air, and it has nothing to do with summer’s arrival.  Instead, there’s a slowly building realization that taxes are going to rise sooner rather than later, and the discourse has shifted from preventing that rise to guiding it.  Judging by the flurry of articles over the previous few weeks, the discussion will focus, largely for political reasons, on the Value Added Tax and some sort of beverage tax.  Below the fold are a few recent examples of the VAT-discussion, and I will discuss the beverage tax (usually called soda tax) version in a later post.

1. The VAT and the Money-Machine Argument. A lot of conservatives are against any tax because they’re ideological, and still others recognize the issue but fear a VAT because of vague concerns of it turning into a “money machine”.  To the extent that taxes raise revenue, this argument is true, but it is obviously a feature, not a bug, of the VAT.  Bruce Bartlett goes on to point out that VAT rates really rose because of the 1970s inflation but that they are otherwise pretty stable.
2. When We Will Get a VAT.  This is Bartlett’s analysis of the political calculus necessary for a new tax law and the possible ways that could arrive.  Pessimistic that meaningful reform will soon pass, he laments, “I think it’s stupid to put up with a decade of unnecessary pain and suffering before we finally bite the bullet and do what has to be done to stabilize our nation’s public finances. But I don’t see any other path that will get us there. The right-wing, tea party fantasy that we can solve our fiscal problems only by cutting spending has to be proven by experience to be a failure before rational people can finally put real solutions like a VAT on the table without being denounced by Larry Kudlow and the Wall Street Journal editorial page for trying to Europeanize the American economy and turn every American into a tax-slave.”  I would only add that this “fantasy” has been disproven since the reign Reagan.
3. The Case Against the VAT. A good analysis of the strengths and weaknesses against a Value Added Tax.  Basically, there are very few strengths and many more weaknesses to the argument against.
4. The VAT Buzz Grows, But What Would it Mean? A good summary with a link to a longer Tax Policy Center analysis of the impact of a VAT in different forms.  A simple VAT with no exceptions would almost equally affect all income brackets but, of course, the devil is in the details.  Representative Ryan’s implementation of a VAT, for example, would also decrease corporate income taxes and so greatly benefit corporations and wealthy individuals.  Not a surprise.

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