海角大神

I don鈥檛 mean putting a falsely-positive 鈥渟pin鈥� on the idea of a value-added tax鈥揵ut rather: could the VAT be to tax policy what has meant to the group fitness industry?

A few weeks ago at a speaking on his 鈥淩oadmap鈥� plan, between effective strategies to reduce the budget deficit and effective ways to lose weight. I argued that the problem with the Ryan plan was that it was like an 鈥渁ll diet but no exercise鈥� approach, which would be unsustainable because it would make us feel deprived of the 鈥渟weets鈥� (e.g., special-interest government spending) we want along with the good healthy food (e.g., our critical social insurance programs) we need. (We鈥檇 end up binging and purging, is what I was thinking but didn鈥檛 get to elaborate on.)

A week after the Ryan event, the New Republic鈥檚 in talking about supply-side ideology as it has been displayed recently in discussions about extending expiring tax cuts (the routinely expiring variety as well as the 鈥渕other鈥� of all tax extenders, the Bush tax cuts):

Imagine a man who has to lose weight. Either he needs to eat fewer calories or burn more of them. Conservatives are arguing that he should exercise less, because this will force him to eat less food. [The Heritage Foundation's J.D.] Foster writes, 鈥淟ower taxes are evidently what the American people want, which is especially galling to the tax-increase crowd.鈥� And it鈥檚 true 鈥� Americans want to keep their spending and tax cuts too. Diets that promise to let you spend all day on the sofa and still eat lots of delicious food are also popular.

So I think we need to exercise more and exercise more efficiently. We need to change the way we exercise, not just repeat the same old tired step aerobics classes of the past. We need the equivalent of 鈥渟辫颈苍苍颈苍驳鈥�鈥�

If you read what all the best minds in tax policy are writing, you come to realize that whether they lean left or lean right, they鈥檙e all talking about the real value of a tax that could change the way we raise revenue鈥搇ike 鈥渟辫颈苍苍颈苍驳鈥� changed the way we exercised鈥�the value-added tax (VAT).

Here鈥檚 what the Brookings Institution鈥檚 about it. They go through the full list of major concerns and criticisms of the VAT and explain how each could be fairly easily addressed. The VAT is not perfect, but it could be the most 鈥渞elatively attractive choice鈥� available to us, in terms of ways to raise badly-needed revenue. They conclude:

The VAT is not the only tax or spending policy that can constructively help solve the fiscal problem, nor will it solve the problem by itself. Nevertheless, to oppose the VAT is to argue either (a) there is no fiscal gap, (b) ignoring the fiscal gap is better than imposing a VAT, or (c) there are better ways than the VAT to make policy sustainable. No one disputes the existence of a fiscal gap, though, and the economic costs of fiscal unsustainability are enormous. As to the notion that there are better ways to put fiscal policy on a sustainable path, we would be excited to learn about them. In the meantime, policy makers should not let the hypothetical鈥攁nd to date undiscovered鈥攊deal policy get in the way of the time-tested, more-than-adequate VAT.

And here鈥檚 the 鈥搒panning more than 25 years!鈥揳nd what he concluded in one of his more recent pieces published in Forbes (my favorite line emphasized, speaking of good analogies):

[E]ventually I decided that it was stupid to oppose something because of its virtues. Opposing a VAT because it鈥檚 too good is like breaking up with your girlfriend because she is too beautiful.

In my opinion, opposing a VAT means implicitly supporting our current tax system, which imposes a dead-weight cost equal to a third or more of revenue raised鈥揳t least 5% of GDP鈥揳ccording to . This is insane. The idea that raising taxes in the most economically painful way possible will hold down the level of taxation and the size of government is obviously false. It just means that the total burden of taxation including the dead-weight cost is vastly higher than it needs to be. If we raised the same revenue more sensibly we could, in effect, give ourselves a tax cut by reducing the dead-weight cost.

Those who oppose big government would do better to concentrate their efforts on actually cutting spending. The idea that holding down taxes or insisting that we keep a ridiculously inefficient tax system because that will give us small government is juvenile. If people want small government, there are no shortcuts. Spending has to be cut. But if spending isn鈥檛 cut, then I believe that we must pay our bills. I think it鈥檚 better to do so as painlessly and efficiently as possible. That鈥檚 why I support a VAT.

And coincidentally (and to come full circle), a drywall-hanging-while-on-August-recess Paul Ryan about the idea of a VAT:

I asked Ryan to handicap the probability of another legislative landmark that would forever change the course of the U.S. economy: The adoption of a European-style value-added tax, or VAT.

Right now the VAT appears so radical that it鈥檚 gained little support in Congress and isn鈥檛 even endorsed by the Obama administration. But Ryan told me that a VAT is far more likely than most Americans imagine. The reason isn鈥檛 the one that many experts are forecasting 鈥� that the Fiscal Commission appointed by President Obama will recommend the controversial levy. 鈥淚 don鈥檛 believe the Commission will advocate a VAT,鈥� Ryan told me, adding that he doesn鈥檛 speak for his fellow members.

On the contrary, Ryan fears another path to the VAT. 鈥淚t cannot pass without a fiscal crisis,鈥� he warns. 鈥淥ur leaders are now courting one with big spending and by adding new entitlements. They know in the back of their minds that if a fiscal crisis comes, they can throw a VAT on top of that.鈥�

Ryan concluded by saying that the economy now faces two layers of uncertainty 鈥� the threat of a debt debacle that鈥檚 already well known, and the added danger that the solution will be the heretofore unimaginable and largely unforeseen: a VAT. With that, the congressional carpenter signed off: 鈥淚鈥檝e got to go back to hanging drywall.鈥�

One way or another, I think some form of a VAT is inevitable, and that鈥檚 not a bad thing. It鈥檚 probably one of the best forms of 鈥渆xercise鈥� we could get into right now. It鈥檚 not something we would necessarily choose to do for the heck of it, if we didn鈥檛 need to 鈥渓ose weight.鈥� But given that yes, we have to endure some 鈥減ain鈥� to get some 鈥済ain鈥� (uh, loss in this case), it鈥檚 better than the boring treadmill of just raising marginal tax rates, and certainly more effective than the (while eating in front of the TV) Bush tax cuts.

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