If You Weren't Cynical Before, Fall Into a VAT

[haha]

http://www.reuters.com/article/idUSTRE6355N520100406

http://taxprof.typepad.com/taxprof_blog/2010/04/bill-turnier-argues-for-a-vat.html

http://www.youtube.com/watch?v=04_Tn...layer_embedded

I have complete faith in the ability and dedication of America's political class to screw up anything that comes along. But, a VAT is one of the few taxes that isn't all bad. It will not impose extra costs on America's export industries, and thus it may tend to repair the gutting of our industrial core. It will impose some tax on the 48% of Americans who currently pay no income tax, though undoubtedly much of this will be rebated in the service of redistribution.

The income tax will not be replaced by a VAT, only supplemented by it. But face it, the last ten years have permanently altered our fiscal position. American will never, ever again be a low tax nation so the task is to work toward the least destructive of a lot of admittedly destructive choices.

I expect that if and when it happens it will be a debacle, because look at the likely authors and look at the ignoramuses that make up the US voting public. Still, so will anything else be a disaster and this might be less awful than some other possibilities.

It may be quite a bit better than the likely alternative taxes for relatively high income but low spending ERs.

Ha

[Gone4Good]

Why all this fatalism over a VAT?**

If you all think cutting spending is hard, just wait until you see what happens when they try to propose an entirely new, and extremely complicated, tax regime that hits 100% of the population. I'm not sure why anyone takes this stuff seriously.

** I saw this the other day, which makes me think the VAT is something they're sprinkling in the water at right leaning op-ed pages and blogs.

[Gone4Good]

With respect to the Reuters link, Volker mentions an energy tax as well as the VAT. An energy tax is a much easier sell politically. Especially if it is put in place as a "cap and trade" regime with gradually increasing auctions for carbon. It is far, far sneakier than a VAT and has the much easier sell of being necessary to save the planet.

VAT is DOA. Long live Cap & Trade.

[haha]

Quote:

Originally Posted by Gone4Good Why all this fatalism over a VAT? If you all think cutting spending is hard, just wait until you see what happens when they try to propose an entirely new, and extremely complicated, tax regime that hits 100% of the population. I'm not sure why anyone takes this stuff seriously.

Cutting spending is not hard, it is absolutely impossible. Bush was going to cut spending, instead he started two wars and started the Wall Street Charity Project. Then Obama continued these wars and came up with unprecedented new spending projects in the name of saving the economy.

As to why anyone would " take this stuff seriously", it doesn't take much thought to answer that one. Since almost all other industrialized social welfare nations have a VAT, and since the US has recently become a flat out social welfare nation ( though perhaps not exactly an industrial one), why wouldn't we turn to the same revenue sources that have proven so powerful in other countries?

One or more of the taxes Volcker mentioned are coming, and I am not at all sure that they might not the best response to our truly monumental screwups of the past 10 years.


Ha

[ESRwannabe]

Quote:

Originally Posted by haha I have complete faith in the ability and dedication of America's political class to screw up anything that comes along. But, a VAT is one of the few taxes that isn't all bad. It will not impose extra costs on America's export industries, and thus it may tend to repair the gutting of our industrial core. It will impose some tax on the 48% of Americans who currently pay no income tax, though undoubtedly much of this will be rebated in the service of redistribution.

I agree with that.

It is inevitable that taxes will have to go up somehow and a VAT tax at least has some advantages. A VAT tax is hard to avoid and will tax everyone including the black market indirectly. It also encourages people to consume less. So, it may help us bring down the trade imbalances.

[Gone4Good]

Quote:

Originally Posted by haha One or more of the taxes Volcker mentioned are coming

I have no doubt more taxes are coming (see above). And they should. We have more than one thread running at the moment about how 47% of tax filers don't pay any income taxes. (And we have more than one thread by the same people complaining that we're Taxed Enough Already).

[Bikerdude]

Quote:

Originally Posted by Gone4Good . An energy tax is a much easier sell politically. Especially if it is put in place as a "cap and trade" regime with gradually increasing auctions for carbon. It is far, far sneakier than a VAT and has the much easier sell of being necessary to save the planet. VAT is DOA. Long live Cap & Trade.

I think your on to something here. After all they didn't give Al Gore the "Nobel" prize for nothing. Plus, all our kids and Grandkids will be happy that we are saving the Polar bears.

[Sevo]

As much as I hate the idea of raising taxes, the reality is that this last 40 years of experimentation with socialism leaves us no other choice. The "Wealthy" can have every thing they have taken from them and still not fill the financial hole we have dug. All the other socialist countries have a vat I suppose we have no other option but to adopt that form of tax also.

[Bikerdude]

Quote:

Originally Posted by Sevo All the other socialist countries have a vat I suppose we have no other option but to adopt that form of tax also.

Yeah, and look how great they are doing!

[Nodak]

The politicians are far too busy buying votes with tax money to ever cut spending.

[Steve O]

Ahh why worry about good old fashioned Marxism, Comrads...

The stock market is up and the weather is nice

The new world order, thousand points of light, hope and change, it's all gonna be great...

Why bother working or investing when the Antichrist will take care of you...

[chinaco]

Some form of tax is coming. The current health plan imposes a a tax on earning/investment income once one goes over $200k/$250k.


IMO - given the options of general VAT or Energy (specifically fossil fuels)... (If we had to have one of them), Energy would be preferred. It would give an incentive for our country to become for energy efficient.... a better mousetrap would beat the taxman plus it would likely incent American industry to become more energy independent. A VAT is purely a money collection mechanism with no other possible benefit other than increasing taxes.

Because of the recent focus on energy independence and fossil fuel inflation/price instability, a fossil fuel tax would probably be the least frowned upon (if there is such a thing ). It buries a tax in almost everything... but people who figure out how to become more conservative save.

But there could be a down side... it could push more energy intensive manufacturing overseas. They need to think through the unintended consequences before they do anything.

[Gone4Good]

Quote:

Originally Posted by haha As to why anyone would " take this stuff seriously", it doesn't take much thought to answer that one. Since almost all other industrialized social welfare nations have a VAT, and since the US has recently become a flat out social welfare nation ( though perhaps not exactly an industrial one), why wouldn't we turn to the same revenue sources that have proven so powerful in other countries?

Now I understand. The recent flurry of commentary on a VAT isn't because anyone seriously thinks this will get through the political process (assuming they've thought it out that far) it really reflects more of an epiphany on the right. It seems they have come to the sudden realization that taxes do indeed need to rise. That "starve the beast" has run its course. It's not that a VAT is likely, or even possible, it is just what some see as the best form of tax given the fact that taxes need to rise.

To those who've long denied that tax increases were necessary, I welcome you to reality.

But it might not be as bad as you think. Remember taxes fell quite significantly in the past 10 years. And we're only a decade removed from budget surpluses. And assuming we're not stuck at permanent 10% unemployment, government revenues should grow much faster than GDP over the next many years. I don't think the changes needed will be all that onerous.

I'd like to see CBO score . . .
1) Roll back all the Bush tax cuts (not just on the wealthy, but on everyone)
2) Raise SS retirement age
3) Change the SS inflation factor
4) Means test entitlements
5) Discretionary spending freeze for 5-10 yrs (or a shorter-term freeze plus a spending cap that grows at CPI - 100bp or so)

Let the CBO tell us how we look after that. If we're still in a huge hole (I think probably not) then we'll talk about what other taxes need to be raised.

[Steve O]

Volker is a member of the elite. Also a Democrat.

Their plans have been in place for a long time and working nicely

[donheff]

G4G. If you are correct that talk of a VAT tax is a frustrated kick back from the right then you may be wrong that it is a non-starter. Several of your recommendations (e.g. means testing Medicare and SS) would seem to be non-starters themselves. Freezing discretionary spending never gets us anywhere since Medicare, Medicaid, SS and defense are the trillion pound gorillas. I could see a smallish VAT poking its head under the tent pitched as cutting the deficit by a few trillion over ten years in conjunction with "plans to get health care spending under control." A small start wouldn't appear that onerous and might generate some conservative support if the social justice side agreed to let it remain fairly regressive. Once the structure exists, changes would come easily.

[Gone4Good]

Quote:

Originally Posted by donheff Several of your recommendations (e.g. means testing Medicare and SS) would seem to be non-starters themselves. Freezing discretionary spending never gets us anywhere since Medicare, Medicaid, SS and defense are the trillion pound gorillas.

While entitlement reform is difficult, nearly everyone is in agreement that it is necessary. And there is precedent. In 1983 we raised the retirement age from 65 to 67 (a benefit cut), subjected benefits of higher income individuals to taxation (a form of means testing), and raised the payroll tax. No reason all of those things won't be on the table today.

Meanwhile, no precedent exists for a sweeping new tax regime that impacts 100% of the population. It is hard to envision what political coalition would form to support a VAT. Democrats will complain that it is extremely regressive (which it is), while Republicans will complain that it is a tax increase (which it is). Where is the middle ground consensus? At least with entitlement reform a middle ground bargain can be found. . . higher taxes on the "rich" in exchange for some benefit give backs for the "middle class".

We won't know until we know. But since I've been in the business of making predictions lately, I'll say with near certainty that 10 years from now the US will still be VAT free.

[Independent]

I can guess about what's most likely politically. Unfortunately, I tend to agree with Ha and Donheff on that. A VAT keeps us in step with the Europeans, if it's small at the beginning, pitched as a "consumption tax", it may fly with both left and right.

I know what I'd prefer. A simple crude oil or fossil fuel tax (no need for cap and trade, just a tax) would offset some of the externalized costs of these fuels and raise a lot of money. If we need more, just simplify the FIT by getting rid of special deals.

[dex]

Quote:

Originally Posted by Steve O Ahh why worry about good old fashioned Marxism, Comrads... The stock market is up and the weather is nice The new world order, thousand points of light, hope and change, it's all gonna be great... Why bother working or investing when the Antichrist will take care of you...

The Romans would appoint a dictator for limited periods of time for specific problems - like a war.

I think the US public will eventually go the dictator route - no time limit - for the hope of security.

[ziggy29]

I think it's inevitable that we have to raise taxes (AND cut spending), but I prefer my taxes to be obvious and transparent, not hidden in the price tag. People should know how much government is costing them.

[Gone4Good]

Quote:

Originally Posted by dex I think the US public will eventually go the dictator route - no time limit - for the hope of security.

Wow. You make SteveO seem positively sunny.

But the question is, will the dictator impose a VAT?

Quote:

Originally Posted by dex no time limit .

Which is good. Because the Roman Empire took about 320 years to fall . . . I can live with that.