Well, not really a new idea, but certainly a hot one. In this dispatch from the deficit fronts, we learn the government needs more revenue -- economists say 20 to 30 percent more, in combination with spending cuts, in order to address the long-term structural deficit. One bright idea being tossed around is the Value Added Tax (VAT), a multi-stage levy that takes a small percentage of a product's added value from every step in the production chain. It's popular in Europe! Catherine Rampell has penned a nice introduction:
In Australia, the government imposed a value-added tax in the middle of an overhaul of the system in 2000, which included making the income tax system more progressive. “Many countries with VATs have income taxes that start out at higher income thresholds,” said James Poterba, an economics professor at M.I.T. Combining a broad-based VAT with a steeply progressive income tax, he said, avoids affecting the poor too much.
There is a growing consensus that tax reform is coming, perhaps during President Obama's first term, and that the VAT could play a part in some kind of grand bargain that lowers income tax rates while eliminating many of the various loopholes to create a broader tax base. The conflict between progressives unwilling to raise taxes on the poor and conservatives determined to lower taxes on the wealthy will need to be bridged somehow, and this is the wonk's ideal pick. Then again, there is this:
What is good for economic purposes, however, can be bad politics, especially since Mr. Obama pledged not to raise taxes on the bottom 95 percent of Americans. (And many Republicans have pledged not to raise taxes on the bottom 100 percent of Americans.)
-- Tim Fernholz
