Yet More on Supply-Siders [Eric]

If you're going to offer the thesis statement that Larry Summers is a smart man, you'll get no argument from me.

The huge problem with VAT proposals in this country is that the right muddies the issue by saying we should completely replace the income tax structure with only a VAT or as they thought to call it in a fit of sloganeering, the "Fair Tax." If someone needs to call his proposal the "Fair Tax" in order to make it sound good, then you know something must be wrong with it.

And I'm not automatically opposed to any regressive tax. I just don't think for a moment that the whole tax system should be built around it, as the "Fair Tax" acolytes seem to think. For example, the gas tax is regressive in that a poor man's and a rich man's personal gasoline needs probably won't differ all that much, if we assume they're using the same types of vehicles. But at the end of the day, the gas tax is a sensible user fee for the construction and upkeep of the roads they both drive on, and the argument that it can be regressive doesn't really outweigh that.

That said, I'd certainly be open to enacting a national sales tax alongside the present income-tax structure. After all, most state governments use both and seem t get along just fine, so why not the federal government, too? Obviously we'd cut the income tax rates somewhat as we make room for the brand-new VAT, but the income tax system would have to essentially remain in place.

I remember reading a Jack Kemp piece a few years ago in Human Events*, in which he was practically calling George W. Bush an economic visionary on taxes and spouting the basic Lafferist line. And he's only gotten worse over time. It's kind of hard to respect him as an intellectually honest man after that he's become just another ideologue, in a covenant marriage to theories that were relevant to the problems of the 1970's but are now out of date.

As for the distinction between "taxes" and "tax rates," this strikes me as just so much Lafferism. It held true to a certain extent in the late 70's and early 80's, but I don't think it really has a place in current discourse. Nowadays if you cut taxes you will get some increase in revenue after a short while, but it's only through a backdoor mechanism of Keynesian deficit stimulus. And this means the increase in tax revenue will be more than wiped out by the concurrent growth of the national debt, so you'll have to raise tax rates (yes, I said "rates") even higher in the future. The Kudlow-Kemp types are looking for a free lunch.

(*The original Kemp piece had paragraph breaks. Human Events' formatting got botched on old stuff when they switched to a different platform.)