Bruce Bartlett writes in Forbes that it is time for a Value-Added Tax (VAT):
According to a Washington Post report, the Obama administration and leaders on Capitol Hill are looking seriously at a value-added tax to pay for health care reform and reduce federal budget deficits. Predictably, Republicans reacted to the news with glee. They view the VAT as political poison that will destroy Obama and congressional Democrats if they dare to enact one.
The irony is that the VAT is probably the ideal tax from a conservative point of view. As a broad-based tax on consumption it creates less economic distortion per dollar of revenue than any other tax--certainly much less than the income tax. If Republicans are successful in defeating a VAT, the alternative will inevitably be significantly higher income taxes, which will do far more damage to the economy than a VAT raising the same revenue.
I myself long opposed the VAT on money machine grounds. I changed my mind when I realized that there was no longer any hope of controlling entitlement spending before the deluge hits when the baby boomers retire; therefore, the U.S. now needs a money machine.
I first examined VAT a week ago and I am beginning to think that this is a good solution to our economic problems. Bartlett’s point regarding the baby boomers is a huge one. I promise you, if there was no Medicare to care for baby boomers, people would be begging for it. There is simply no way a middle class family could pay for the type of care that allows their aged loved ones the dignity they deserve. Plus, we want health care, and a balanced budget, and pay off the deficit, and so on.
Taxes are always a tough sell. However, if this is done right (raise the minimum wage, lower or get rid of income taxes, don’t tax food) then this country can really start to move forward. Stay tuned.