Pelosi’s “Value-Added” Tax
Harvard Economist Greg Mankiw has some great points on the so-called value-added tax, or VAT, on his blog. Recently, Speaker of the House Nancy Pelosi raised the specter of implementing a new tax to help boost revenue for Uncle Sam. In terms of taxes, the VAT is about as equitable as they come. It’s a consumption tax similar to the Fair Tax, which was advocated by Mike Huckabee during the 2008 Republican primaries. The problem is, however, that the VAT would not replace our current tax system; instead, it would be an additional layer of taxation. If you want to kill jobs and retard economic growth, add new layers to an already convoluted tax system. Like Mankiw notes, if the VAT were to replace our current tax system–to include the personal income tax, the corporate tax, the payroll tax, and the estate tax–I would be all for it. But it won’t.
Our current progressive tax system, which punishes success and hampers economic growth, is bad policy and our economy is smaller because of it. The VAT on its own is a decent idea which seems to be about as equitable as tax systems come. It emphasizes personal responsibility and choice. When you choose to buy a product or service, you pay a tax. Of course, critics argue that the VAT is a “tax on the poor.” Aw, good ol’ class warfare brought to you by left-wingers and “progressives” everywhere–but would you expect anything else?
Personally, I’ve always liked the Flat Tax idea–10% or 15% across the board–completely equitable. Everyone pays the same percentage regardless of what they make. So, as for the VAT, it makes sense when it stands on its own because it is equitable and is an effective way to generate revenue. However, since the VAT is being envisioned by the Democratic Congress as an additional layer to our current, broken system–it is a bad, bad idea.
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