Wednesday, April 06, 2005

More Voices for VAT

Perhaps one of the only blogs brave (or foolish) enough to post about the tax code, The Yellow Line offers up this NYT editorial by conservative thinker Bruce Bartlett. Long a proponent of slashing taxes, Bartlett is now in favor of instituting a VAT tax (we wrote about the VAT here).

Why the change? Because Bartlett has concluded:

…unless spending is checked or revenue raised, we are facing deficits of historic proportions. It is simply unrealistic to think we can finance a 50 percent increase in spending as a share of gross domestic product - which is what is in the pipeline - just by running ever-larger deficits. Sooner or later, that bubble is going to burst…

When that day comes, huge tax increases are inevitable because no one has the guts to seriously cut health spending. Therefore, the only question is how will the revenue be raised: in a smart way that preserves incentives and reduces growth as little as possible, or stupidly by raising marginal tax rates and making everything bad in our tax code worse?

If the first route is chosen, the value-added tax is by far the best option available to deal with an unpalatable situation. Absent any evidence that the White House and Congress are prepared to restrain out-of-control health spending, I see no alternative.

A VAT may not be the best option, but at least there are people thinking about how we can handle the impending tax gap. Question is, will The Whitehouse and Congress give this any thought? Or will they leave the problem they’ve created for the next group in power to solve?


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