Greedy Politicians Intrigued by Value-Added Tax to Finance European-Style Welfare State in America

The Washington Post reports that there is growing interest among politicians for a form of national sales tax known as the value-added tax (VAT). But rather than use the VAT to replace the income tax, the politicians want a new source of revenue to expand the burden of government. The story explains:

With… President Obama pushing a trillion-dollar-plus expansion of health coverage, some Washington policymakers are taking a fresh look at a money-making idea long considered politically taboo: a national sales tax. Common around the world, including in Europe, such a tax – called a value-added tax, or VAT – has not been seriously considered in the United States. But advocates say few other options can generate the kind of money the nation will need… At a White House conference earlier this year on the government’s budget problems, a roomful of tax experts pleaded with Treasury Secretary Timothy F. Geithner to consider a VAT. A recent flurry of books and papers on the subject is attracting genuine, if furtive, interest in Congress. And last month, after wrestling with the White House over the massive deficits projected under Obama’s policies, the chairman of the Senate Budget Committee declared that a VAT should be part of the debate. “There is a growing awareness of the need for fundamental tax reform,” Sen. Kent Conrad (D-N.D.) said in an interview. “I think a VAT and a high-end income tax have got to be on the table.” …”While we do not want to rule any credible idea in or out as we discuss the way forward with Congress, the VAT tax, in particular, is popular with academics but highly controversial with policymakers,” said Kenneth Baer, a spokesman for White House Budget Director Peter Orszag. Still, Orszag has hired a prominent VAT advocate to advise him on health care: Ezekiel Emanuel, brother of White House chief of staff Rahm Emanuel and author of the 2008 book “Health Care, Guaranteed.” Meanwhile, former Federal Reserve chairman Paul A. Volcker, chairman of a task force Obama assigned to study the tax system, has expressed at least tentative support for a VAT. “Everybody who understands our long-term budget problems understands we’re going to need a new source of revenue, and a VAT is an obvious candidate,” said Leonard Burman, co-director of the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution, who testified on Capitol Hill this month about his own VAT plan.

Not surprisingly, the Washington Post did not bother to quote any free-market people who oppose giving politicians a new source of money. For what it is worth, I wrote a piece for National Review in 2005 that explains why a VAT is a terrible idea. The core arguments are just as relevant today as they were then:

A VAT might have some theoretically attractive features, but it is a perniciously effective way of raising revenues and inevitably leads to bigger government. The best evidence comes from Europe. Back in the mid-1960s, the burden of government in Europe wasn’t that much higher than it was in the United States. Tax revenues consumed about 30 percent of gross domestic product in Europe. The U.S. had a small advantage: The tax burden, including state and local governments, was about 27 percent of GDP. But then European governments started adopting the VAT. Denmark was the first to do so in 1967. France and Germany followed, with many other European nations imposing the tax within 5 years. For politicians, the VAT was great news. Besides being a new source of revenue, the VAT has been a disturbingly easy tax to increase since it’s built into the price of products and hidden from consumers. Moreover, even small increases generate a big pile of revenue because the tax base is so broad. The tax has become so easy to raise that VAT rates in Europe average more than 20 percent. For taxpayers, however, the news has been disastrous. Thanks to this levy, the burden of government in Europe today is much higher than it is in the U.S. On average, taxes consume about 41 percent of Europe’s economic output. While other taxes have also climbed, the VAT certainly has helped finance the explosion of social welfare spending that creates such a drag on European economies. In the U.S., by contrast, the total tax burden as a share of GDP is about where it was 40 years ago — 27 percent… Many European governments…claimed that more destructive taxes would be reduced or repealed once the VAT was implemented. In the short term, this was true: As late as 1975, taxes on income and profits were lower in the EU than they were in the U.S. But this was a transitory phenomenon. Income-tax rates quickly began climbing and almost immediately jumped above U.S. levels. Ironically, the VAT facilitated higher tax rates on income since politicians often argued that a higher VAT had to be accompanied by higher income-tax burdens to ensure the tax burden wasn’t being shifted to lower-income taxpayers. There is only one scenario that would make a VAT acceptable. If U.S. lawmakers were willing to repeal the 16th Amendment and abolish all taxes on income, a VAT would be an acceptable risk. But until that happens, taxpayers should vigorously resist the Europeanization of America.

A Compelling Government Interest in… Fabulous Drapes!

Libertarians often disagree with their non-libby friends about the need for government-mandated occupational licensing in fields like medicine. The idea behind such licensing is that the government has a compelling interest in protecting citizens and that licensing actually achieves that end. The evidence is not as cut and dried on the latter point as many people assume, but at least there’s enough meat there to warrant a discussion.

Whatever you think about occupational licensing in the context of medicine, there’s one field where the government’s “compelling interest” – and ability to successfully execute on it – is particularly hard to defend: interior design.

In three U.S. states, government officials are, right now, “protecting” their citizens from bad Feng Shui, misguided uses of prints with plaids, gauche arrangements of bric-a-brac, and other crimes against fabulosity. No one in Florida, for instance, can call himself an interior designer lest he receives the official imprimatur of the state. The Institute for Justice has filed suit to overturn the licensing requirement. Imagine the harm to Floridians if they succeed….

No. I can’t imagine any either.

In this field, more than any other, the real reason for most occupational licensing becomes apparent: cartelization to protect incumbent businesses from competition.

UPDATE: Check out this video by ReasonTV about the interior design license laws around the country.

Cohn vs. AFP

The New Republic’s Jonathan Cohn accuses Americans for Prosperity (AFP) of “lies” for running an ad that claims “Washington wants to bring Canadian-style healthcare to the U.S.”

AFP’s ad is more defensible than Cohn’s criticisms of it.

Cohn elides the question of whether Shana Holmes (the woman featured in the ad) was almost killed by Canada’s Medicare system.  For a supporter of single-payer like Cohn, that is tantamount to admitting that, yeah, socialized medicine sometimes kills people.

Cohn argues that the ad is unfair because Canada has many advantages over the U.S. health care sector.  That may be true, but the ad doesn’t appear to defend American health care.  It merely says, “government should never come in between your family and your doctor” and “Don’t give up your rights.”  That’s not pro-American health care or anti-reform.  It’s just anti- the type of reform that Cohn wants.  And it points to one area where our semi-socialized U.S. health care sector appears to be superior to Canada’s: quicker access to intensive treatments.  Sometimes, that saves lives.  In fact, AFP could go farther and say that the United States has another edge over Canada, in that we develop nearly all of the best new medical technologies.  In fact, our medical technologies save Canadian lives, but Canada’s health care system (and its supporters) steal the credit.

Yet “the real lie,” Cohn claims, is that the ad suggests that “Washington” wants to impose a Canadian-style system on the United States.  Cohn calls that claim “demonstrably false.” But consider:

  • President Obama has said he would prefer single-payer and has hinted that he would like to make incremental changes in that direction.
  • Many people who support a new public plan (e.g., Paul Krugman) do so because they believe it will lead to single-payer.
  • Massachusetts, which has already implemented most of the reforms that Obama and congressional Democrats are considering, is now contemplating a large leap toward Canadian-style health care by imposing capitation on its entire health care sector.
  • Government rationing becomes increasingly likely as government revenues fail to keep pace with the cost of government’s health care promises.  (See again, Massachusetts.)
  • The Left wants government to ration care.  That’s the point of the comparative-effectiveness research funding.  That draft House Appropriations Committee report committed a classic Washington gaffe when it said that certain treatments “would no longer be prescribed,” because it was admitting the truth.

Cohn is correct that no politician of influence is saying she wants to impose a Canadian-style system on the United States.  But I prefer to pay attention to what they’re doing.

AFP: 1.  Cohn: 0.

Why Should We Pity These People?

A couple of weeks ago, I ripped apart a factually anemic but all-too-typical USA Today article decrying the plight of student debtors. Today, the grand journalistic tradition of anecdote-and-pity laden reporting on student debt continues with offerings from Business Week and The New York Times.

In an article about tight times for student loan forgiveness programs, The Old Gray Lady sticks with the journalistic tried-and-true by leading with an extreme anecdote that readers, presumably, are supposed to see as illustrating typical suffering:

When a Kentucky agency cut back its program to forgive student loans for schoolteachers, Travis B. Gay knew he and his wife, Stephanie — both special-education teachers — were in trouble.

“We’d gotten married in June and bought a house, pretty much planned our whole life,” said Mr. Gay, 26. Together, they had about $100,000 in student loans that they expected the program to help them repay over five years.

Then, he said, “we get a letter in the mail saying that our forgiveness this year was next to nothing.”

Now they are weighing whether to sell their three-bedroom house in Lawrenceburg, Ky., some 20 miles west of Lexington. Otherwise, Mr. Gay said, “it’s going to be very difficult for us to do our student loan payments, house payments and just eat.”

Please, Mr. Gay (and Mr. Glater, the author of this heart-string puller)! You, and presumably your wife, are only in your mid-twenties, have what appears to be a very nice home according to the picture accompanying the article, and yet have the nerve to assert that taxpayers should eat your student loans lest you not eat at all!

Excuse me if I don’t start singing “We Are the World.”

This is simple greed – you know, the stuff for which the media regularly excoriates “big business” – but readers are expected to see it as suffering because it involves recent college grads. Oh, and grads who have gone into teaching, according to Glater “a high-value but often low-paying” field. That the Gays have felt wealthy enough to buy a house despite holding much greater than normal student debt – and the fact that on an hourly basis teachers get paid on par with comparable professionals – doesn’t present any impediment to the reporter repeating the baseless underpaid teacher myth. It’s all just part of the standard narratives.

Business Week’s piece isn’t much better than the Times’, though at least reporter John Tozzi had the decency not to start off with an emotionally manipulative anecdote of supposed human suffering. His third paragraph, however, centers around “analysis” from the student-centric Project on Student Debt, and he rolls out the ol’ Tale of Woe right after:

“It’s just so frustrating,” says Susan D. Strayer, director of talent acquisition for Ritz-Carlton in Washington. “They tell you to be self-made. They tell you get yourself a good education and you can get yourself into a pretty big hole.” Strayer, 33, has $90,000 in student loan debt from her bachelor’s at Virginia Tech and a master’s from George Washington University. She also has an MBA from Vanderbilt University, which she earned on a full scholarship—but skipped two years of earnings to acquire. Strayer says her monthly loan payments of $600 barely budge the principal on her debt. She doesn’t regret her educational decisions, although she says the debt load has made her put off plans to pursue a consulting side business full-time.

So Ms. Strayer chose one of the most expensive schools in the country —George Washington — for a Master’s (in what we do not know); we have no information about why she chose to finance her education through loans (she and her parents bought new cars, clothes, and stereos instead of saving for college, perhaps?); but we are supposed to feel it is a terrible thing that at 33 she hasn’t been able to start a full-time consulting business. Why is that, exactly?

Thankfully, though he frontloads anecdotes and pity parties, Tozzi ends his piece with a clear, if far too rare, voice of reason:

“It’s easy for me to say, ‘Oh, I have all this student loan debt,’ but I chose to take it and I have to deal with the consequences of that choice,” [24-year-old] Patricia Hudak says. “So many people in my generation think of everything as a short-term investment with immediate return.”

Finally, someone I can truly feel sorry for! Why? Because with journalists cheering it on, Ms. Hudak is exactly the kind of person that our political system will punish, making her pay not only for her own choices, but those of the Gays, Ms. Strayer, and countless other student debtors who really do think that everything, and everybody, should give them an immediate — and huge — payoff.

Chavez Tries to Shut Down Pro-Free Market Educational Conference

The Cato Institute media department sent this press release to media outlets in Latin America, after the Venezuelan government tried to shut down a Cato-sponsored conference this week:

CAUCAGUA, VENEZUELA—A Cato Institute educational seminar fell victim to an attempt by the Venezuelan government to shut it down for expressing ideas critical of the Chavez regime.

Numerous Venezuelan government agencies harassed the Cato Institute event, called Universidad El Cato-CEDICE, or “Cato University,” which took place in Caucagua, Venezuela May 24-26. The event is co-sponsored by the Venezuelan free-market think tank Centro de Divulgación del Conocimiento Económico por la Libertad (CEDICE) and was organized to teach and promote the classical liberal principles of limited government, individual liberty, free markets and peace.

During the course of the event on Monday, the National Guard, state television and a state representative from a ministry of higher education interrupted the seminar, demanding that the seminar be shut down on the grounds that the event organizers did not have permission to establish a university in Venezuela. When the authorities were told that neither Cato nor CEDICE was establishing a university and that the Cato Institute has long sponsored student seminars called Cato Universities, the authorities then insisted that the seminar was in violation of Venezuelan law for false advertising.

After two hours of groundless accusations, the Chavez representatives left but their harassment has continued. One of the speakers at the seminar, Peruvian intellectual Alvaro Vargas Llosa, was detained by airport authorities Monday afternoon for three hours for no apparent reason. He was released and told that he could stay in the country as long as he did not express political opinions in Venezuela.

“The government’s attacks on freedom of speech are part of a worrying pattern of abuse of power in Hugo Chavez’s Venezuela,” said Ian Vasquez, director of Cato’s Center for Global Liberty and Prosperity, from Caucagua. “But they have so far not managed to alter the plans of the Cato Institute here, and will hopefully not do so, as we continue to participate in further meetings the rest of this week.”

For more information about Cato programs in Latin America, visit www.ElCato.org.

UPDATE (5/27, 2:30 PM EST) : Cato just received word from scholar Ian Vásquez that “Chavistas are gathering in front of the conference hotel now…Cato is all over state TV.”

Vásquez snapped this photo of people carrying anti-Cato signs and protesting the conference.img00017

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