One Way to Increase the Welfare State

From today's WSJ:

The VAT [value added tax], for the uninitiated, is essentially a hidden sales tax that originated in France and has become a favorite of legislators around the world because of its ability to stealthily raise large sums of revenue with a minimum of public outcry...

But like any tax a VAT removes resources from the dynamic private sector of the economy and places them in government hands. And in Europe it has become a major enabler of the ever-expanding, slow-growth welfare state. The chart nearby shows tax revenue as a percentage of gross domestic product in the U.S. and the 15 (non ex-communist) countries of the European Union. Notice that the numbers were roughly the same in 1965. But starting in 1967-68 European countries began adopting the VAT en masse, and the growth of government exploded...

Part of the problem with [Congressman] Thomas's VAT talk is the bait-and-switch nature of what he's selling. On the one hand he's touting it as merely a pro-growth replacement for the corporate income tax. But in the next breath it's the solution to the projected funding shortfalls in Social Security and Medicare, as well as the way to finance "personal accounts." In the latter case it obviously wouldn't be just a corporate tax replacement, but a means of permanently and massively increasing the government's share of the economy. We had thought the goal of Mr. Bush's Medicare and Social Security reform ideas, by contrast, was to meet the challenge of caring for the elderly without an ever-increasing tax burden.

There's one more question Mr. Thomas and VAT allies need to address. If the VAT is the solution to America's long-run fiscal challenges, how come the balance sheets of countries that already have this tax look no better (and in most cases much worse) than ours? Our answer is because new tax revenues never result in a happy long-run political equilibrium; they merely enable legislators to spend more here and now, before coming back for more tax revenue later.

One lesson of the Medicare fiasco is that bad Congressional ideas need to be stopped before they gather too much political momentum. We hope Mr. Thomas's fellow Republicans are telling the Chairman that they didn't come to Washington to deliver to America the tax that helped create the European welfare state.

Comments

[Another Dreamer]

If we don't start generating some tax revenue, however, the dollar will collapse as the US defaults on its national debt. Anything short of decreased war spending or increased tax revenue will not stop this.

[Jessica]

http://famous-people.t35.com/name20/vinessa-shaw.html

[Jessica]

http://famous-people.t35.com/name20/vinessa-shaw.html