National Review The Problem with VAT |
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By Veronique de Rugy A few weeks ago, George Mason University’s Tyler Cowen suggested that the free-market movement ought to come up with better arguments against the VAT than our traditional “we don’t want more taxes,” if we don’t want to end up with a VAT on top of our income tax. It is a fact that these days, the VAT is being taken seriously even by pro-market conservatives and libertarians. The argument in favor of the VAT is that spending can’t be cut, entitlements can’t be reformed and the funds would be mostly used for deficit reduction and, hence, help us avoid a Greek-style collapse brought on by unsustainably large public-sector debt. In this Reason Online article, I begin to respond to Cowen’s challenge. My main points are that: 1. 2. There’s little to no chance that the government could credibly commit to assign even a share of any new VAT revenue to deficit reduction. 3. Even if the government could credibly pledge VAT revenue to deficit reduction, a VAT would not even start to address our problems. The amount of additional revenue needed is far beyond what a VAT can raise. 4. But more importantly, you may call me an optimist, but I believe that the massive redistribution of income from the young to the old will soon become politically unsustainable. Everyone assumes that younger generations won’t be willing or able to take dramatic measures to force a change to the status quo. The theory that states that the elderly, who are in favor of keeping the status quo, vote more fails to account for the fact that social changes do happen. It can’t explain when social changes have occurred either. But again, I will recognize that I am an optimist and I am not ready to believe that younger voters will sit on their hands while their future payouts are slashed and their taxes are hiked to pay for the benefits of current retirees. Entitlements will have to be reformed and spending will be cut.
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