Why Not a National Sales Tax?

As Daniel Indiviglio mentions, the idea of a national sales tax -- similar to the value-added tax (VAT) typical in European countries -- has grown more popular in America as the scope of the federal government's budget mess has become clear. Daniel is quite skeptical that such a tax could be adopted in the short term:

Don't get me wrong: a VAT has benefits as well -- particularly if you aren't bothered by the poor paying a greater share of their income to taxes. I just find it highly unlikely a congress with strong Democrat [sic] majorities and a very progressive president would ever allow it. After all, they could instead rely on a plethora of other options, such as further increasing taxes on the rich or imposing high luxury good taxes, as more liberal-minded alternatives.

I'm not so sure.

As Matt Yglesias noted here (citing data turned up by Lane Kenworthy) the regressive-consumption-tax-plus-generous-welfare-state model is the norm in Europe. Indeed, the bulk of the redistribution undertaken on the continent (and in Britain and Australia, for that matter) is a result of direct transfers rather than progressive taxation. Far from being inimical to a social democratic outlook, it's a principle tenet.

If I had to anticipate the primary opposition to a sales tax, I'd guess that it would come from the right. Adoption of the tax would be predicated on the idea that current tax structures are insufficient to support current and future levels of spending, and would be impossible in the absence of compensating social spending -- on health care, education, and so on. For a Republican to agree to such a tax would be to abandon some of his dearest principles: a commitment (at least in theory) to smalller government -- a starved beast -- and a determination to limit the growth of entitlements and the intrusion of the government into the private health care system.

There might be some combination of sales tax plus corporate tax cuts that could peel off the necessary conservative support. But in general, any new tax that funds universal health insurance will pass despite Republican, and not Democratic, opposition.

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Ryan Avent is The Economist's economics correspondent and the primary contributor to Free Exchange, an economics blog

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