TW: Conservative supply-side acolyte Pethoukoukis summarizes fellow our new favorite conservative Bruce Bartlett's proposals on fiscal policy. I insert comment below.
From James Pethokouki at Reuter:
"Bartlett on how much revenue a VAT would raise:
If we only need to raise taxes by a percentage point or two, to say 20% of GDP, then we don’t need a VAT unless we want to use it as a pure tax reform. We could use the revenue to abolish the AMT, abolish the estate tax, maybe abolish the corporate tax, whatever. That would be fine with me because we don’t need the revenue today. But I think we will need it in the future because I don’t see any natural limit to spending or any appetite in either party for significant spending cuts. Therefore, unless we want deficits of 10% of GDP forever we have to raise revenue. When the day comes that the political class finally agrees to raise net new revenue it will be better to raise it through a VAT a percent or even fraction of a percent at a time. If the VAT is already in place that will be easy—too easy, you probably think. But the only other alternative is to raise tax rates, which is worse.
TW: He is right VAT is a very powerful tax instrument that can raise revenue quickly without the direct and poltically unpalatable pain of income taxes. For that reason it is dangerous. On the other hand, where are the folks standing up volunteering to cut their social security or Medicare or cut defense spending?
Bartlett on a tax system he likes better than the VAT:
My ideal tax system is a...flat tax, always has been. At this point I think it is inevitable that if we adopt a VAT it will basically be as an add-on to all the other taxes—that’s the way it is in every other country. If we can get rid of some worse taxes as part of the deal, that’s great. But to make that deal, conservatives have to play the game. If Democrats have to raise taxes on their own, they will do it in the worst possible way, economically. But if the Republican alternative is to do nothing, then Democrats will do what they have to do as they did in 1993. If they decide to do a VAT they would undoubtedly be very amenable to using some of the revenue for tax cuts that would enhance growth. But, again, if Republicans refuse to play the game and won’t commit themselves to support the final package, then Democrats will do it on their own and we will end up with something worse—multiple rates, exemptions that create inefficiency, and higher income tax rates to boot.
TW: Obviously I am not as cynical about the Dem as Bartlett, but I agree a bi-partisan tax plan would likely be better than a "liberal" Dem plan. But like they say it take two to tango. I do not believe the Repubs are anywhere near ready to deal on taxes.
Bartlett on Republicans and budget deficits:
At some point, conservatives have to realize that they have to make a choice. Refusing to make one by living in a dream world where truly massive spending cuts are enacted to keep spending and taxes as a share of GDP in their historical range is not an option, in my opinion. If conservatives think I am wrong about the need for significantly higher taxes, then I think they have a responsibility to put plans on the table to seriously cut Social Security, Medicare and Medicaid and put real effort into getting them enacted. But I don’t see it. All I see are pie-in-the-sky plans to privatize these programs and somehow magically cut spending without reducing anyone’s benefits. Those aren’t going to happen, ever. So if we are going to live in the real world, how will spending be cut enough to prevent the need for higher taxes. If you find out, let me know."
http://blogs.reuters.com/james-pethokoukis/2009/10/08/vat-attack-the-value-added-tax-bruce-bartlett-and-deficits/
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