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Tax Reform Thread
There's been a lot of talk in the past few weeks about the coming institution of a value-added tax in the U.S. to help pay for the new healthcare reform. Additional tax revenue will be necessary once the promised budget reductions in other programs that were supposed to pay for healthcare reform predictably fail to be implemented, and a VAT is a likely new revenue source. Most of the recent VAT discussion was just speculation by pundits, but today Paul Volcker broached the idea at an event in New York.
So, let's start the discussion on the coming U.S. tax reform.
The Democrats' plan is most likely going to be to add a VAT onto the top of the existing U.S. tax system. While I think this is a terrible idea, I'm actually strongly in favor of a VAT, so long as it's implemented properly...
I'd be willing to compromise on the first point, as a replacement of our current tax system with a VAT has worthwhile advantages even if serious entitlement reform isn't on the table. The other three points seem completely necessary to accepting a VAT, however, and the public needs to be educated on the issue to ensure that Congress can't pass a VAT that ignores these requirements without electoral repercussions.
Ideally, I'd like to see a VAT that would be set up like the FairTax, with the substitution of a VAT for the national sales tax component of the FairTax helping to limit tax evasion. Such a tax system would be vastly preferable to our current complicated, loophole-ridden and inefficient tax system.
What do you all think about this? I'd particularly like to hear from foreigners in countries that already have a VAT. A VAT is a pretty unfamiliar concept in an American political context and I'd like to know more about the real-world benefits and disadvantages of a VAT.
Volcker: Taxes likely to rise eventually to tame deficit
NEW YORK (Reuters) - The United States should consider raising taxes to help bring deficits under control and may need to consider a European-style value-added tax, White House adviser Paul Volcker said on Tuesday.
Volcker, answering a question from the audience at a New York Historical Society event, said the value-added tax "was not as toxic an idea" as it has been in the past and also said a carbon or other energy-related tax may become necessary.
Though he acknowledged that both were still unpopular ideas, he said getting entitlement costs and the U.S. budget deficit under control may require such moves. "If at the end of the day we need to raise taxes, we should raise taxes," he said.
NEW YORK (Reuters) - The United States should consider raising taxes to help bring deficits under control and may need to consider a European-style value-added tax, White House adviser Paul Volcker said on Tuesday.
Volcker, answering a question from the audience at a New York Historical Society event, said the value-added tax "was not as toxic an idea" as it has been in the past and also said a carbon or other energy-related tax may become necessary.
Though he acknowledged that both were still unpopular ideas, he said getting entitlement costs and the U.S. budget deficit under control may require such moves. "If at the end of the day we need to raise taxes, we should raise taxes," he said.
So, let's start the discussion on the coming U.S. tax reform.
The Democrats' plan is most likely going to be to add a VAT onto the top of the existing U.S. tax system. While I think this is a terrible idea, I'm actually strongly in favor of a VAT, so long as it's implemented properly...
Yet there is a reasonable scenario where America would accept a VAT. In fact, it is the only scenario under which we should accept a VAT.
First, Washington would have to demonstrate it could manage the public purse by reforming entitlements in a Ryan-esque manner. A tall order, but a necessary prerequisite or else voters would fear that entire six-point budget gap would be closed by tax hikes via a VAT. So, in the end, government spending needs to be dramatically cut. (Preferably, we would never need to get past this step.
Second, a VAT would have to completely overwrite the current complex and inefficient tax code. If not, voters would fear getting hit by both VAT and income tax hikes. A VAT can’t be an add on.
Third, every sales receipt in America would have to indicate the VAT penalty. But politicians love the hidden aspect of a VAT as way of duping voters. To them opaqueness is a feature, not a bug.
Fourth, the intended tax burden should be kept level at first. A pro-growth VAT — one that does away with corporate and investment taxes — might produce more revenue merely by expanding the economic pie.
First, Washington would have to demonstrate it could manage the public purse by reforming entitlements in a Ryan-esque manner. A tall order, but a necessary prerequisite or else voters would fear that entire six-point budget gap would be closed by tax hikes via a VAT. So, in the end, government spending needs to be dramatically cut. (Preferably, we would never need to get past this step.
Second, a VAT would have to completely overwrite the current complex and inefficient tax code. If not, voters would fear getting hit by both VAT and income tax hikes. A VAT can’t be an add on.
Third, every sales receipt in America would have to indicate the VAT penalty. But politicians love the hidden aspect of a VAT as way of duping voters. To them opaqueness is a feature, not a bug.
Fourth, the intended tax burden should be kept level at first. A pro-growth VAT — one that does away with corporate and investment taxes — might produce more revenue merely by expanding the economic pie.
I'd be willing to compromise on the first point, as a replacement of our current tax system with a VAT has worthwhile advantages even if serious entitlement reform isn't on the table. The other three points seem completely necessary to accepting a VAT, however, and the public needs to be educated on the issue to ensure that Congress can't pass a VAT that ignores these requirements without electoral repercussions.
Ideally, I'd like to see a VAT that would be set up like the FairTax, with the substitution of a VAT for the national sales tax component of the FairTax helping to limit tax evasion. Such a tax system would be vastly preferable to our current complicated, loophole-ridden and inefficient tax system.
What do you all think about this? I'd particularly like to hear from foreigners in countries that already have a VAT. A VAT is a pretty unfamiliar concept in an American political context and I'd like to know more about the real-world benefits and disadvantages of a VAT.
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