Thursday, April 08, 2010

The Right-Wing Push for a V.A.T. ("Consumption Tax")

A significant number of 'conservative' columnists appear to favor a 'value added tax' - a national tax on goods and services - as desirable and perhaps even inevitable. Charles Krauthammer doesn't expressly endorse a V.A.T., but declares one "inevitable". The chair of the Council of Economic Advisers under President George W. Bush, R. Glenn Hubbard, opines in the Wall Street Journal, insists that entitlements be slashed and that we implement "significant, broad-based tax increases", but not on the rich who he believes already pay too much income tax:
To raise the revenue for the president's welfare-state ambitions, the tax increases must necessarily be broad-based, as, for example, with a broad-based consumption tax. A useful start would be to calculate—and present to the public each year—the broad-based consumption tax required to pay for higher spending.
Karl Rove is very excited about the idea. One of Hubbard's former colleagues from Bush's Council of Economic Advisers, Donald B. Marron , shares similar thoughts in a different forum, calling for budget cuts and suggesting that any tax increases hit the middle class, while arguing that income taxes "are usually worse for the economy than taxes on consumption".

We should note at this juncture that none of these people were giddily calling for Bush to turn on the V.A.T. spigot, let alone to back away from his slashing of taxes for the rich, even those who were officially advising him. To the extent that a V.A.T. is made necessary by tax cuts for the rich, no problem - the important part is that a Democrat pass the V.A.T. so that they can sneer that he's a "tax and spend liberal" even as he implements the regressive tax policy they favor.

David Brooks, as you might expect, is in the game. Linking to Mr. Hunt, Brooks argues:
Debt reduction has to be about renewal and prosperity, not pain and sacrifice.

That means deficit reduction has to be embedded in policies that produce growth. Michael Graetz of Columbia University has proposed replacing the current awful tax code with a value-added tax of 14 percent, cuts in the corporate tax rate, and a fair income tax with two simple brackets kicking in over $100,000. Many people have ideas to streamline the welfare state. The message has to be: we can afford to have a thick safety net, if it is more efficient.
That's right - tax cuts for corporations and the rich, with the difference made up for by a regressive tax that hits the poor and targets the middle class. Going back to Hunt,
A bottom line, he sees, would be a tax system that — even if it isn’t more progressive and more simplified than the current one — at least encourages economic growth and investment, and is easier to adjust for changing economic circumstances.
So there it is, explicit - it's better in the mind of Brooks and Hunt to make the tax system less progressive and even more complex, if the result fits with their assumptions of what will drive the economy. No offense, I'm sitting through yet another a recession, looking back on Reagan's trickle-down and G.W.'s slashing of taxes for the rich and wondering why we should yet again trust the assumptions of right-wing commentators that the cure-all for any economic woe is to move toward a regressive system of taxation.

Note, even in the wealthiest circles, not everybody agrees with that particular brand of selfishness:
"I'm in favor of higher taxes on people like me," declared Eric Schoenberg, who is sitting on an investment banking fortune. He complained about "my absurdly low tax rates."

"We're calling on other wealthy taxpayers to join us," said paper-mill heir Mike Lapham, "to send the message to Congress and President Obama that it's time to roll back the tax cuts on upper-income taxpayers."

"I would with pleasure sacrifice the income," agreed millionaire entrepreneur Jeffrey Hollender.
When Republicans were proposing the so-called "FairTax" to replace income taxes with a consumption tax, the flaws in the concept were patent. The new proposal appears to be to cut income taxes for the wealthy while implementing the V.A.T. - sort of a "worst of all worlds" solution. George H.W. Bush had it right when he said "No new taxes" (even if he meant "no tax increases"). Taxes tend to work like leaky faucets. It's really easy to turn them up, but really hard to turn them off. The uber-wealthy thought that they had lobbied their way out of estate taxes, but it turns out not to be so easy. Although exceptions occur, particularly where the wealthy and powerful are concerned, once a tax is implemented its natural tendency is to go up. If you've never done it before, for a "you've gotta be kidding me" moment check out that list of taxes on your phone bill. Even if you don't care that a V.A.T. is regressive, you should care about any new tax. Perhaps especially when it's a tax that the political right appears to love.

1 comment:

  1. But the "lucky duckies" who are too poor to pay income tax still need to pay their share, right? The "conservative" push for more Americans to pay income taxes as noted by Krugman is consistent with what you write, and I do think that these folks really do want a new "sock it to the working class" tax that they can later use to "justify" another round of tax cuts for the rich.