Although both parties have rejected a value-added tax, political gridlock is keeping them from offering better alternatives than the VAT.
As Washington braces for the first serious conversation in more than a decade about deficit reduction, some economists and independent budget experts fear that the hyperpartisan political atmosphere is narrowing the options for dealing with the chronic budget shortfall.
The latest sign: the emphatic rejection by both parties in recent days of a value-added tax, a sales tax imposed by nearly every other developed nation. After a White House economic adviser [former Federal Reserve Chairman Paul Volcker] was reported speaking semi-favorably about a VAT, the White House this week vigorously denied that President Obama is looking to include the tax in his deficit-cutting arsenal.
“This is not something the president has proposed, nor is it under consideration,” White House press secretary Robert Gibbs told reporters.
In Lori’s story, Len Burman expresses his frustration with perhaps a little exaggeration of President Obama’s position on taxing (only) the rich:
“We’re taking all the feasible, non-disastrous ways of dealing with our budget problems off the table,” said Leonard Burman, former director of the nonpartisan Tax Policy Center, who now teaches at Syracuse University. “We can’t cut Medicare. We can’t enact a VAT. We can’t raise any income taxes ever, except possibly on the 17 people who make over $1 billion a year.
“Behind closed doors, almost everyone serious in Washington understands there’s a big problem,” Burman said. “But in public, basically if you say anything intelligent, you’re killed.”
But Bruce Bartlett nails it when he explains that conservatives are so obsessed with the economic merits of low tax rates that they forget that revenue has its economic benefits as well, because deficits matter:
Historian Bruce Bartlett, a domestic policy adviser in the Reagan administration who has written extensively in support of a VAT, castigated McCain online for his “irresponsible attack,” arguing that a VAT would be far more efficient and less damaging to the economy than many of the alternatives, including higher income taxes.
“I think we have to remember that low taxes or tax rates are not an end in themselves; they are the means to an end, which is higher growth and greater prosperity,” Bartlett wrote on the blog Capital Gains and Games. “In this sense, I think right wingers pay far too much attention to the negative economic consequences of taxation while essentially ignoring the negative economic consequences of extremely large deficits.”
Oh yeah. Why do we have taxes? You mean they’re supposed to actually raise revenue to buy public goods and services, and to pay for subsidies–via tax breaks or direct spending–on certain (ideally socially-beneficial) activities?
If you don’t like the idea of an add-on VAT, then give us some better tax policy ideas to actually raise revenue–not just more ideas on how to lose revenue. “Better tax policy” does not always mean “lower taxes.” That’s what Bruce is explaining the conservatives often don’t understand.
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