I’ve known and liked Bruce Bartlett for more than 20 years, so you can imagine my dismay that he is now arguing for a value-added tax (VAT). I’m not sure whether his mind has been captured as part of a remake of Invasion of the Body Snatchers or if he’s just been hanging around Washington for too long, but his implication that it is possible to be a pro-market conservative while supporting a huge new tax to finance bigger government is absurd.
Conservatives (not counting the big spenders who call themselves “compassionate conservatives”) share the libertarian goal of smaller government. And trying to achieve smaller government by raising taxes is akin to treating alcoholics by giving them keys to a liquor store.
The VAT is a particularly bad idea because it would be a huge new source of revenue, as Bartlett acknowledges in an article for Forbes.com:
Based on the experience in other countries, I estimate that a U.S. VAT could realistically tax about a third of the gross domestic product (GDP), which would raise close to $50 billion per percentage point. If we adopted Europe’s average VAT rate of 20%, we could raise $1 trillion per year in 2009 dollars.
He makes the point that a VAT does not do as much damage, per dollar raised, as the personal or corporate income tax, but so what? That would only be a compelling argument if the VAT was used to eliminate other taxes. At the risk of pointing out the obvious, that’s not what he’s proposing.
Interestingly, even though his core argument is that we should adopt a VAT to give the government additional revenue, Bartlett tries to be all things to all people by mentioning that a VAT could replace other taxes:
Replacing the corporate tax with a VAT would unquestionably improve the competitiveness of all U.S. exporters.
Even here, though, his argument is misleading. A VAT would have no impact on U.S. exporters. All the benefits would occur only because the corporate income tax would disappear. Not that this matters since Bartlett is not advocating for that position.
He then continues to muddy the waters by citing Senator DeMint’s legislation, presumably to make it seem as if his plan is good by association.
Sen. Jim DeMint, R-S.C., introduced legislation (S. 1240) to establish a business consumption tax that is, in essence, a VAT.
There is a gigantic difference, of course, between Bartlett and DeMint. The senator proposes to replace the internal revenue code, whereas Bartlett wants to augment it.
He then complains that supporters of limited government attack his plan for facilitating bigger government, but he offers no refutation. That is no surprise since Bartlett is throwing in the towel, saying we should have a VAT since it is hopeless to fight against growing government:
[W]henever I suggest the idea of a VAT for the U.S., I am attacked by supply-siders and assorted right-wingers. The other day my friend Larry Kudlow criticized me for wanting to “Europeanize the American economy.” Their concern is that the VAT is a money machine that will lead to higher taxes and bigger government precisely because it is such a “good” tax. I myself held this same view for many years. But eventually I decided that it was stupid to oppose something because of its virtues. Opposing a VAT because it’s too good is like breaking up with your girlfriend because she is too beautiful.
The last line is clever, but ridiculous. The more appropriate analogy is that you are married to the Creature from the Black Lagoon, and Bartlett wants you to take the Wicked Witch of the West as a second wife.
If you want the real story on the VAT, watch this video.