Replies

Eventually, conservatives are going to have to come to terms with the fact that America will go bankrupt unless taxes go up. I don't like it, and like the author of the above piece, and I wish we could do it with spending cuts alone. But anyone who tells you that our budget woes, and national bankruptcy can be avoided, without some new taxes is living in a fantasyland.

Poppycock. If tax rate are raised, the depressing effect on economic activity is likely to bankrupt us even faster.

But suppose the federal government can find a way to extract more money without choking off economic growth. What makes anyone think the additional revenues will be used to reduce the deficit or pay down the debt?

The truth is, no amount of tax revenue can ever satisfy the statists. They will always spend whatever they take in, and more.

The VAT or other consumption-type taxes are the only answer.

If VAT is the answer, it was a stupid question.

The only sure answer to the federal deficit is drastic reductions in spending.

Poppycock. If tax rate are raised, the depressing effect on economic activity is likely to bankrupt us even faster.

Yes, there's a tradeoff. If you increase tax rates, you increase the government's revenue share of GDP, you also create distortions and disincentives to work, which in turn made GDP lower than it otherwise would be. The revenue-maximizing tax rate is neither zero nor 100%

There are also different ways to collect taxes, and some have stronger incentive effects than others.

The VAT just happens to be one of the most efficient ways in collecting taxes, in that it distorts incentives a lot less than other types of taxes (i.e. an income tax).

So what you could do is implement a VAT of, say 10%, and the slash income taxes to around 15%. The overall tax burden would be higher, but because your are placing less of the tax on income, the deadweight efficiency loss would be lower. Both revenue and GDP would go up.