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March 30, 2006

Link of the Day: Taxes Are Fun Edition

I think Kash's argument for imposing a Value Added Tax are pretty compelling. Folks tend to get caught up in the regressiveness of this, but I'd caution that the programs to be shored up by any tax increase -- namely Social Security and Medicare -- are inherently progressive, and keeping them in good shape is crucial. Moreover, I'd be fully supportive of coupling a VAT with some broad-based, progressive tax reform, maybe Ron Wyden's Fair, Flat, Tax proposal. Package the two together and you offset much of the VAT's regressiveness, achieve serious tax simplification, and bring government spending into line with revenue, which saves primarily progressive programs.

Another way to use the VAT is as a dedicated funding source for universal health care, as in the Center for American Progress's proposal. I find that scenario particularly attractive, but then, you knew I would. I think Democrats spend too little time thinking about the power of dedicated funding sources, which strike me as a politically potent way to levy new taxes that have a direct and recognizable connection to new services. That's an easier sell than a generalized hike in rates, and with health care reemerging as the nation's top issue, I think folks would be uniquely receptive to a reasonable consumption tax that assures them medical coverage.

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Comments

Dedicated funding sources through special taxes do make a lot of sense because people can see where their money is going, directly.

But some caution is needed, because I suspect we don't want good programs to be neglected because they don't have a targeted funding source.

Another big problem with the dedicated-object tax is that Congress doesn't have to spend the money as promised. The national highway gas tax is a good example. Billions of dollars sit in the 'fund' that isn't spent on highways and public transit. The money ends up funding the general government. Their really isn't a legal way of restraining Congress on this issues - short of a Constitutional amendment. Social Security funds are spent on the general budget every year, with no impediment.

I'm aware that the VAT tax is widely used in many developed countries. What I don't know is whether these countries also have state sales taxes and local property taxes. Our taxing schemes are jury-rigged at best, and I haven't heard any ideas on how to make things more rational across the nation.

I guess I'd prefer to see how a VAT fits in with the total taxing picture before I'd get behind beginning to fund more federal programs through new taxes, as opposed to redistributing the federal income tax more fairly across payers. A new tax structure seems to be just an avoidance of dealing with the base issue: how to pay for the government people seem to want, but are reluctant to pay for.

Posted by: JimPortlandOR | Mar 30, 2006 12:11:24 PM

Ezra, you've gone completely insane. No more progressive income tax?

"the programs to be shored up by any tax increase -- namely Social Security and Medicare -- are inherently progressive"

Sure, if you're in the program. If not, you are in a world of hurt.

A VAT is just what the upper 1% want. Same with a flat tax. And any expectation of programs that compensate those at the bottom is nothing more than wishful thinking.

Posted by: quiddity | Mar 30, 2006 12:28:51 PM

Um -- is there anyone, save those who die early, who don't get in those programs? They're virtually universal, you know. And a VAT is what I, the progressive economist Kash Monsori, and the liberal Center for American Progress want -- and none of us are in the top one percent.

Also -- the post advocates coupling it with a more progressive income tax. But thinking you can raise the rates high enough to cover our looming shortfalls is ludicrous.

Posted by: Ezra | Mar 30, 2006 12:39:03 PM

I like the direction you're heading, and I think you could get a lot of moderate Republicans to bail on BushCo by having simplified taxes such as these.

Posted by: Steve Mudge | Mar 30, 2006 12:57:02 PM

Dedicated funding sources through special taxes do make a lot of sense because people can see where their money is going, directly.

Or, it's an unbelievable trainwreck, as earmarked taxes and expenditures gradually devour the entire budget, a la California.

On the question of a VAT, sure, any tax system if properly administered and enacted can be made reasonably progressive and fair. I've seen a great proposal to replace the payroll taxes for SSRI and Medicare with a VAT. Now everyone who thinks that the Republicans would enact anything except a punitive Jim DeMint screw-the-lucky-ducky-poor tax, raise your hands.

Until the Republicans are gone, this is all fun policy wankery, and I enjoy it, but in the same sense that I enjoy speculative fiction.

Posted by: paperwight | Mar 30, 2006 1:39:03 PM

Remember: when newt Gingrich was readying to take back Congress, he sparked and encouraged an incredible ferment among right wing policy wonks to ensure his party had ideas, not just complaints. Democrats need to think about policy not because we can enact it tomorrow, but because we must be ready to. Who wants to elect a party ill-prepared to actually pursue an agenda?

Posted by: Ezra | Mar 30, 2006 1:49:47 PM

1) Almost every Republican idea boils down to "tear it all down." Most of the think tankery I've seen from them is just rationalization of this position after the fact, almost no matter when it was written. But I'm not a wonk.

2) Yeah, sure, Dems need ideas. There are tons of progressive ideas floating around. And of course, the people who control the Democratic Party, the leadership, don't seem to want anything to do with most of them.

3) If this VAT idea gets traction, I fully expect to see the following mutually contradictory Republcian talking points:

a) The Dems want us to be like the feminized, socialist Europeans -- see, VAT!
b) Even the Dems agree that we should tax consumption, not income.

The Republican politicos have a lot in common with the ID crowd: context-free quote mining in particular.

So this is fun and all, and I'm a big tax geek, but it's fiction, at least for now, and it may be counterproductive fiction.

Posted by: paperwight | Mar 30, 2006 1:58:34 PM

So this is fun and all, and I'm a big tax geek, but it's fiction...

Agreed. When you say you are a "tax geek", do you mean you like discussing the possibilities of different taxation schemes or do you mean that you have an in-depth understanding of the current system?

Posted by: Fred Jones | Mar 30, 2006 2:29:33 PM

2 cents worth from North ( not as far as Alaska )
GST is reputed to stand for God Save the Tories ( nobody else will ). Despite their election this year they spent their time in purgatory for passing what is a VAT. The accounting is incredible ; so is the incidental reporting to Big Brother. And the competition upheld it so eventually it wasn't just one party taking jerk pills.
When levied in conjuntion with provincial ( state to you ) tax it's Harmonized Sales Tax ( doesn't make me sing - 15 to 21% - whew ! )
Finally, by popular wisdom, the proper name is Gouge and Screw Tax.

Posted by: opit | Mar 30, 2006 5:18:28 PM

Why can't the Dems just say they will repeal the Bush tax cuts, returning to the Clinton surplus tax base? (and make some minor adjustments in FICA/Medicare taxes to increase revenues as costs rise?)

And repeat, and repeat: Clinton ran a surplus with fair taxes.

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