There seems to be increasing openness on the center-right to the idea of a new value-added tax -- a kind of national sales tax or consumption tax -- to help close the federal budget deficit in America. I earlier noted the sentiments of former Bush aides Glenn Hubbard and Karl Rove; they've since been joined by Tyler Cowen, an economist at George Mason University with a free-market orientation (is that redundant?), who in a blog post that stopped short of endorsing the idea nevertheless wrote, "There exists a credible bipartisan deal which involves at least half the VAT revenue for deficit reduction, combined with cuts, or slower increases, in marginal tax rates on income and perhaps an elimination of the corporate income tax. Spend some of the rest on health care for the poor, if that is the deal on the Democratic side." And Harvard economist Greg Mankiw, another former Bush aide, wrote last week that if he were a conservative on President Obama's fiscal commission, he'd go along with a VAT as part of a deal that would include elimination of the death tax (Professor Mankiw called it the estate tax) and cuts in the top personal and corporate income tax rates (to 25%).
Mark me down as a skeptic. It's one thing to couple the implementation of a new national consumption tax with a repeal of the 16th Amendment, as the FairTax would do. As the FairTax folks put it: "It is not the intention of this plan, or the desire of the American people, to end up with both a federal income tax and a federal sales tax. The objective is to ensure that one is replaced by the other, not added on top of the other. By repealing the 16th Amendment, we close the door on an income tax for generations to come."
But what Mr. Hubbard, Mr. Mankiw, and Mr. Cowen are talking about is a consumption tax and an income tax. There's nothing to prevent the politicians from making this deal on reducing income tax rates to get a consumption tax, then turning around a few years later and raising the income tax rates back to what they were before, using the same approach that President Obama is now using as an argument for returning to the Clinton-era tax rates. If history is any guide, the consumption tax rate will get increased over time too, same as the Medicare tax rate and the Social Security tax rate have been. At least in the absence of a consumption tax, the politicians can't keep raising the rate of it.
