Conservatives for a Value-Added Tax

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Indiana Gov. Mitch Daniels recently broke ranks with his fellow Republicans at a conservative event this month and spoke favorably about the introduction of a value-added tax (VAT).  He said a "value-added tax" alongside a flat income tax "might suit our current situation pretty well." Republicans, in general, are anathema to the idea of any new taxes, especially a VAT, which has the disdainful quality of being invented and commonly implemented in Europe.  Regardless, Daniels said new taxes might be needed to reduce the federal deficit.

Interestingly, Daniels isn't the only conservative to have recently opened up to the idea of a VAT. In his April 1 column, New York Times columnist David Brooks wrote:

Debt reduction has to be about renewal and prosperity, not pain and sacrifice. That means deficit reduction has to be embedded in policies that produce growth. Michael Graetz of Columbia University has proposed replacing the current awful tax code with a value-added tax of 14 percent, cuts in the corporate tax rate, and a fair income tax with two simple brackets kicking in over $100,000.

Brooks supported the VAT alongside a laundry list of other ways to get a grip on the deficit.

So are these ideas picking up steam with the party faithful? No.

As Bruce Bartlett at Business Insider observed: after Daniels remarks about the VAT "there was an extremely harsh and negative reaction" among Republicans. Bartlett goes on to explore an interesting trend: have American conservatives always been against VAT? Apparently not:

In the United States, there had long been a number of conservative tax theorists such as Norman Ture, Murray Weidenbaum and Charls [sic] Walker who believed strongly that we should replace the corporate income tax and other taxes on capital with a VAT. They believed that this would raise saving and investment and improve America’s international competitiveness.

Until the mid-1980s, virtually all conservatives agreed with this view. But in 1984, the Treasury Department issued a study of the VAT that was highly critical. A key argument was that it tended to be a “money machine” that generated revenue too easily, thus fueling an expansion of government. At a February 21, 1985, press conference, Ronald Reagan denounced the VAT in terms that soon became conservative dogma:

I would have great difficulty accepting … a value-added tax. First of all, this appears to be increasing taxes, which I've said we wouldn't do. But a value-added tax actually gives a government a chance to blindfold the people and grow in stature and size.

According to Bartlett, conservatives have opposed VAT ever since.

Looks as if Brooks and Daniels were just born in the wrong generation.

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