StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

Is There a VAT in our Future?

01 Oct 2009
Posted by Andrew Samwick

James Pethokoukis is on the case, putting together the pieces of a "yes."  My prediction: regardless of how urgent the need for revenue may be, taxes on the highest earners would have to go up dramatically before a VAT of any size would be passed.  Failing that, the Left's history of the first two decades of the 21st century would be that taxes on the wealthy were lowered and 2001 and 2003 and then raised on the middle class in 201x.  The Left is already smarting from what it perceives (correctly, I might add) as a similar thing that happened in the 1980s, when income tax rates were lowered while payroll taxes were increased.  They won't go in for this again unless a very large income tax increase on the highest earners is part of the bargain.

Got that in one

Anyone who claims that we need a VAT to "pay for things" after eight years of Republican mismanagement and 15 years of taxing capital gains at less than half of income levels should be first in line for the lynch mobs.

Won't happen

Tell me how you could add a federal VAT of the European size on top of state sales taxes without bumping the cost of taxable transactions by a third? Talk about regressive.

Raving Liberal

I believe that Michael Graetz has proposed exactly what you are attributing to the left: a VAT, abolition of the income tax for <$100K or so, and an income tax on high-income people to make up the difference. I forgot what he'd do to the payroll tax.

Speaking as a raving liberal, I agree that such a package would be attractive to many of us pink folk. A progressive consumption tax would also be okay, although it would have to be VERY progressive to raise enough income from the higher consumption brackets.

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