| J.D. Foster | December 27th 2010 |
Heritage Foundation
President Barack Obama’s unsustainable near-term fiscal policies are now preamble to the massive and longstanding long-term fiscal problems highlighted in the Bowles–Simpson Commission report, the Domenici–Rivlin report, and elsewhere. As Europe in similar straits is now demonstrating that, in the immortal words of Herb Stein, “what cannot go on forever won’t.”
The preferred solution to excessive deficits for those favoring big government is to turn to a value-added tax (VAT) for additional revenues. In making their case for a VAT, proponents often cite economic advantages of a VAT over an income tax as though the policy was to substitute the VAT for income tax rather than add the VAT. For example, one argument often raised in favor of the VAT is that it would improve the level of private saving. But given that the VAT is being proposed in addition to the income tax rather than as a substitute for it, this argument is flat-out false.
The Fiscal Problem Is Very Real
Federal budget deficits both near- and long-term are unsustainable, a point on which there is finally broad agreement. Something has to give. Either federal spending will be cranked down (as many new incoming Members of Congress are suggesting) from its now-bloated levels of around 25 percent of our economy to a more traditional 20 percent, or federal taxes must soar. For example, if the 2010 budget deficit were reduced entirely through tax increases to long-run sustainable levels, then even if the economy suffered no harm as a result, taxes would need to rise by about $750 billion a year.
In fact, this magnitude of tax increase would be devastating to America’s businesses and families. It is also almost surely beyond the revenue-raising capacity of our current tax system, which is why big government’s defenders are focusing so heavily on the adoption of a European-style VAT as a new, additional revenue source. The Domenici–Rivlin plan, for example, includes a new European-style VAT, though in a bow to the opposition that such a tax has traditionally garnered in the United States, they tried to disguise it by quaintly calling it a Deficit Reduction Sales Tax. A rose by any other name …
Read the entire article
No comments:
Post a Comment