The right is already fighting a proposal that has not been announced (and might never be). It may not be the awful thing they say it is, however.
For more on pruning back executive power see Pruning Shears.
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Over the last few weeks I have heard some rumblings about a value-added tax (VAT), “a fee that is assessed against businesses by a government at various points in the production of goods or services-usually any time a product is resold or value is added to it.” Criticism usually focuses on it being regressive. The poorer you are, the less money you will have to sock away in (usually) tax-deferred investments. If you have to spend almost everything you earn, a VAT or a sales tax can take a big bite out of your paycheck.
That is just for a pure VAT, though. In an article on it a few years ago Jeffrey H. Birnbaum noted that food, clothing and other staples can be exempted; in that case those who by necessity had to spend the greatest part of their income on the basics would not pay at as high a rate as everyone else. Alternately, a tax rebate could be offered for those within a certain multiple of the poverty line. It would require more administration than an exemption, so it might not be as workable, but the point remains that progressive modifications are possible.
The big drawback from a political perspective is this: It would require hiring lots of new agents to monitor compliance. We would need thousands of businesses to pay the VAT, and many would not leap to do so. This would also mean building a new bureaucracy from the ground up, so it would probably take several years for the thing to be running even somewhat smoothly. Each bump along the way would presumably be adequately covered by conservative media.
That would be the heavy lift. There are some great selling points, though. The first and biggest is transparency. For as big a hassle as it would be to keep an eye on tens of thousands of businesses, it is much harder to keep an eye on hundreds of millions of citizens. A VAT that largely replaced the income tax, or replaced it entirely at lower levels, would be much easier to administer. By shifting taxation from citizens to businesses it would become much more difficult to game. Even a detractor like Shawn Tully concedes it is a “virtually fraud-free way to collect money.” That will go over very well in this age of bailouts and criminality.
(Depending on how clever lawmakers are it might be possible to couple a VAT with a mix of changes that would be hard to argue against on principle. If a VAT was coupled with an abolition of the income tax below $100,000 per year, a steep increase in the top marginal tax rates and a slashing of the corporate tax, who could argue it would hit working families hardest or be a jobs killer?)
Moreover, it seems to have the right enemies. The VAT has not gotten a lot of play so far, but those who have come out forcefully against it are people I tend to disagree with – amounting to a sort of back door endorsement. (See the passage about pyramiding here to see the argument in that last link knocked down.) Immediately after the passage of health care reform last week, Charles Krauthammer rang the alarm about the VAT, saying it would essentially be the perpetual motion machine of the welfare state. Krauthammer is an op-ed columnist for the Washington Post, which at this point almost qualifies as an indictment of his intellect. But just for the record, he is also pro-torture, dismissive of civil liberties and massively, persistently wrong on Iraq. If this anecdote is true then he is a seething cauldron of rage as well. If he hates the VAT it must be a good idea!
To be fair, the VAT is also opposed by Yves Smith (ECONned – on sale now! And pick up 13 Bankers by Simon Johnson while you’re at it!), whose opinion I greatly value. She doesn’t like it for different reasons though: It would be largely invisible to the consumer because it is not paid at the cash register (isn’t that a selling point?), and it would get Big Brother poring over the books of businesses throughout America (definitely a red flag).
Still, the general hand waving on the right over it, the prospect of a tax system with greater transparency, the widespread adoption of it elsewhere in the world and the possibility of a progressive structure all point to something that deserves to be at least considered. That opponents seem determined to shut it down before a debate can even begin is telling.
