Value Added Tax

If we can’t pass a Medicare buy-in, which is a really modest reform, it’s hard to see how our old white men will muster the sanity to improve our revenue situation. After all, health care reform is an imperative fiscal and moral issue whereas getting more revenue to fund our society is only a fiscal issue in the short term.

And while income tax is not the most economically efficient way to raise revenue, I still support it as the best response to increasing income inequality. On the other hand, the Value Added Tax is more efficient and should be easier to pass politically.

The New York Times recently explained why a VAT may be closer than we think. (A VAT is basically a sales tax, and in most countries its higher than what we are used to with sales taxes.) Like many facets of life in God’s favorite land, America is the only developed country that does not have a VAT, which is a shame because it will raise a lot of money and encourage savings, two things we lack these days. And if Republicans accept that we have to raise revenue, which is a big if, then a VAT could be their ideal method because it sucks for poor people and expands the tax base. As was done in most other countries, it should be part of a greater tax code overhaul, so it’s quite feasible that a VAT could be part of a reform that also lowers nominal corporate tax rates, increases income tax rates or adds more brackets, fix the AMT, &c. So the implementation of a VAT does not imply an overall decrease in progressive taxation, but that could be part of the deal.

For the record, I support an extension of our tax base and the VAT as one corollary to that.