How One Tax Can Create Higher Spending Today, Lower Deficits Tomorrow

By Derek Thompson

How can you stimulate the economy and cut the deficit at the same time? How about announcing an upcoming tax on the stuff people buy. The threat of the tax encourages you to buy that couch before the government slaps a tax on it, but the government tax raises money. Higher spending today, lower deficits tomorrow.

Maya MacGuineas calls it a "temporary consumption tax deficit-surtax." That sounds multisyllabic enough to be a chemical compound, but the idea is simple enough:

A temporary VAT would also address the problem many of us have with a permanent new consumption tax on top of the existing tax system: that it would take pressure off Congress to cut spending by producing so much revenue

The temporary VAT would go away as soon as the budget was balanced (or reached another agreed upon fiscal goal). That way there would be ongoing pressure to cut spending as soon as possible. The entire country would be rooting for policymakers to fix the budget and eliminate the VAT. Suddenly, there would be a built in constituency for fiscal responsibility.

Read the full story at CNN.

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http://www.theatlantic.com/business/archive/2010/10/how-one-tax-can-create-higher-spending-today-lower-deficits-tomorrow/64079/