Wednesday, April 21, 2010

VAT? R.I.P.

Paul Volcker must feel lonely. He suggested a Value-Added Tax as a possible way to bring more money into the U.S. Treasury. As The Washington Post reports, the idea has proved less popular than swine flu.

Robert Samuelson dislikes the VAT idea because it would have to be enacted alongside the income tax, further complicating the federal tax system. George Will insists the personal income tax must be repealed if a VAT is to be imposed. And both columnists agree that the idea is doomed by politics. Congress could not enact a clean, simple VAT.
  • You can't tax groceries – people have to eat.
  • You can't tax housing – people have to live somewhere.
  • You can't tax cars . . . .
If a VAT is politically impossible, what's the revenue-raising alternative? On paper, reforming the personal income tax has attraction. Tax rates could be kept near Bush levels if if Congress ditched enough "social-engineering" – all the tax credits and deductions intended to encourage everything from working to home buying. Chances of such a neat, clean income tax being enacted? As remote as the chances of enacting a simple, broad-based VAT.

When more revenue must be raised and no remotely sensible way of raising it exists, members of Congress could turn into loose cannons. A return to a $1 million estate-tax exemption? Clever ruses for taxing Roth Ira distributions? Such ideas don't seem quite as wacky as they did a year ago.

1 comment:

concord wealth management said...

I personally dislike the VAT as well. I'm glad it hasn't proven to be popular. However, someone is going to have to think of something to solve this deficit. Cutting benefits to citizens, raising taxes on the rich even more, or any solution is in need of discussion.