That's VAT.

Monday, January 09, 2012

At the Wall Street Journal, Daniel Mitchell notes that GOP front-runner Mitt Romney, along with a couple of surprising others, views the Value Added Tax (VAT) favorably. Before we go on, it is worth it to pause for a moment and consider who else is on this bandwagon:

Herman Cain's 9-9-9 tax plan featured a flat tax and national sales tax. Very few people realized, however, that the final 9 was a VAT. And Rep. Paul Ryan, the chairman of the House Budget Committee and a favorite of the tea party thanks to his bold reforms to modernize Medicare and Medicaid, includes a VAT in his "Roadmap" plan, where it helps finance other reforms such as eliminating the corporate income tax.
Mitchell notes that the VAT enjoys support from fiscal conservatives:
... for relatively benign reasons. It is a single-rate system, like the flat tax, for raising revenue, so it does not raise the possibility of class-warfare demagoguery. The VAT also doesn't hit savings and investment. And there are no distorting and corrupt loopholes. So there's a lot to like about the levy -- or would be, if there were some practicable way of substituting a VAT for taxes on income.
That last sentence is the first whiff of what will go awry if a VAT is imposed without being part of an actual plan (with lots of momentum behind it) to reduce the government's mission back to its proper scope of protecting individual rights. As I blogged years ago:
You've already conceded the moral high ground, so the battle never was about eliminating government programs. And since you were hoping to "starve the beast" (i.e., make cutbacks by inertia) you never really made a compelling case to rein in the growth of government programs either. Now, thanks to George Bush and the complicit "allies" of the fiscal conservatives on the religious right, the initiative in this battle has been seized. (And fiscal conservatives are worried about their alliance with the religious right faltering? It's already gone!)

The goal is now to use expansion of the federal nanny state to cut into the Democratic voter base. The momentum is now for expanding the federal government again and all these so-called "small-government conservatives" have to offer is their take on how we, the taxpayers, are going to pay for all of this? This is a far, far, cry from challenging Bush et al. on whether we should have to pay for any of this at all.
In short, this kind of advocacy of the VAT is both a symptom -- of the kind of cowardice that results from not actually holding professed free market principles in an objective manner -- and a turn for the worse for our economy -- because it's a bigger concession to anti-capitalists than these advocates seem to realize or be willing to admit to themselves.

But leftists opponents understand full well that this "win-win" is really just a win for the expansion of the welfare state:
And that's why, looking at the long-run fiscal situation, the left needs a VAT. It's is the only realistic way to collect the huge amount of revenue that will be necessary to finance the mountainous benefits promised by our entitlement programs. Which is exactly what happened in Europe, where welfare-state policies only became feasible after VATs were adopted, beginning in the late 1960s. 
So a VAT lets people like Romney look like they're dismantling the welfare state (by addressing a few of its more irritating symptoms) without really having to do anything substantive, starting with making a moral stand for capitalism; and it lets leftists lay off the class warfare and gets them off the hook for the fact that there simply isn't enough money to be soaked from the rich to pay for their schemes.

I will add only two things here. First, it's worth noting, based on Europe's escalating sovereign debt crisis, that even a VAT is only a temporary reprieve from the fact that the state can't provide everything to everyone. Second, this all vaguely reminds me of a quote -- probably from Ayn Rand -- that I can't quite dredge up to the effect that it takes unprincipled Republicans to really expand the welfare state.

-- CAV

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