David R. Henderson  

De Rugy on VAT

The Sixties and the Tea Party... Yes, Voters Will Sit on Their ...

Veronique de Rugy recently published an excellent article on the perils of a value-added tax (VAT). She gives a nice history of the VAT along the way.

Great paragraph:

The first thing to note is that Greece collapsed in spite of having a 19 percent VAT since 2005. The second thing is that there's little to no chance that the government could credibly commit to assign even a share of any new VAT revenue to deficit reduction. Take President Obama's first budget, released last year. In it, he assumed that most of the $600 billion coming from proposed cap-and-trade fees would be allocated to deficit reduction. A year later, his budget still assumes the revenue (even though the law is not yet passed), but all of it has been allocated to spending programs, not to reducing the deficit. A government that cannot commit fictional revenue to deficit reduction is unlikely to do so with actual money either. (emphasis added.)
I put that line in bold because it's the most important line in the piece. It fundamentally challenges the thinking of those who want the VAT to reduce deficits. What they want can differ from what would happen.

Later in the piece, she does an introducing voting analysis of young people and sums it up as follows:

Unless we believe that younger voters will sit on their hands while their future payouts are slashed and their taxes are hiked to pay for the benefits of current retirees, then entitlements will have to be reformed and spending will be cut.

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CATEGORIES: Fiscal Policy , Taxation

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