Why a VAT Makes Sense

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In recent columns, George Will and Robert Samuelson both attack the idea of a value-added tax. Will:

A VAT will be rationalized as necessary to restore fiscal equilibrium. But without ending the income tax, a VAT would be just a gargantuan instrument for further subjugating Americans to government.

Samuelson:

Almost every pro-VAT argument is exaggerated, misleading, incomplete or wrong. The VAT is being merchandised as an almost-painless way to avoid deep spending cuts. The implicit, though often unstated, message is that a VAT could raise so much money it could eliminate future deficits by itself. This reasoning, if embraced, would create staggering tax burdens and exempt us from a debate we desperately need.

In a new column for National Journal, I respond to their arguments. Nobody wants to pay more tax, I agree, but consider the alternatives. Long-term spending cuts on the scale required to bring the deficit back under control are going to be even less popular. So far as I know, nobody is arguing that a VAT would be painless. On the other hand, there is something odd about criticising the VAT, as both men do, partly on the grounds that it is such a good tax.

I'll concede this much to Samuelson and Will: The superior efficiency of a VAT is a mixed blessing. Increasing a VAT, once you have it, is less damaging to the economy than raising the same amount of revenue from an unreformed income tax. So one result of a VAT might be less political resistance to higher taxes and bigger government.

Europe's experience seems to support this view. If blocking the growth of the state is your overriding priority, you might oppose a VAT precisely because, as taxes go, it is a good one. By the same logic, of course, you should strive to make the income tax even worse. The rule would be, collect revenue in the most damaging ways possible. That will raise the price of Big Government and tie the liberals' hands.

An interesting theory. While we debate it, the deficit sits there. Big Government is no longer a prospect to ward off. That choice has been made. One might regret it -- but not as much as the consequences of refusing to pay for it.
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Clive Crook is a senior editor of The Atlantic and a columnist for Bloomberg View. He was the Washington columnist for the Financial Times, and before that worked at The Economist for more than 20 years, including 11 years as deputy editor. Crook writes about the intersection of politics and economics. More

Crook writes about the intersection of politics and economics.

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