Mitch Daniels: Hey, how about a VAT?
posted at 5:32 pm on October 15, 2010 by Allahpundit
Alternate headline: “Mitch Daniels continues quixotic bid to disqualify himself from Republican nomination.”
Daniels recited from Kahn’s book: “It would be most useful to redesign the tax system to discourage consumption and encourage savings and investment. One obvious possibility is a value added tax and flat income tax, with the only exception being a lower standard deduction.”
“That might suit our current situation pretty well,” said Daniels, who served as George W. Bush’s Office of Management and Budget director and was a senior adviser in Ronald Reagan’s White House. “It also might fit Bill Simon’s line in the late ‘70s that the nation should have a tax system that looks like someone designed it on purpose.”…
In a brief interview after his speech, Daniels downplayed the significance of his comments. He stressed that he would support a VAT “under only the right circumstances,” reiterating his desire for it to be paired with a flat income tax.
“If you think that the paramount problem for the country is the debt, and we’ll never get on top of it without really robust growth, one of the things you want is a very different, more pro-growth tax system,” Daniels told POLITICO. “And a quarter century ago, (Kahn) was writing about one. That’s all. There are other ways to get at it.”
He also sounded warm to the idea of a tax on imported oil. Let me play devil’s advocate here, knowing full well that tax nerds will jump down my throat in the comments: While Daniels has said before that we might need to raise taxes to eliminate the debt, the “VAT + flat tax” system would be geared mainly towards greater efficiency, not necessarily towards a heavier overall tax burden, right? The reason the VAT makes righties shudder is that it’s typically mentioned by Democrats as a new tax on top of the 25+% income tax brackets that most people currently find themselves in. All Daniels is suggesting, I take it, is replacing the brackets with a single income tax rate of, say, 15% and then dropping, say, a 10% VAT on goods and services, which would in theory make tax collection vastly more efficient while giving taxpayers an extra measure of control in deciding how much tax they pay. Want to reduce your debt to Uncle Sam this year? Simple — under a VAT, you’d just spend less.
George Will wrote about this a few months ago, conceding that there’s a case to be made for a VAT — if the federal income tax is eliminated. But what if it’s just reduced? And what about this?
A VAT is collected on value added at stages during the process of production, but most of its burden is borne by consumers. They file no VAT returns, so its stealthiness delights the political class, which can increase it in small, barely noticed increments, with every percentage point yielding another $100 billion…
Because a VAT potentially taxes everything, it would be riddled with exemptions. This is because it maximizes the political class’s opportunities for showing favoritism — by, for example, exempting certain “green” goods. It also widens that class’s scope for the pleasure of being bossy. For example, it could reduce a VAT’s regressiveness — like rain, a VAT falls equally on the rich and the poor, but the poor devote a larger portion of their income to consumption — by exempting most foods but not those that the nanny state disapproves: “Put down that sugary soda and step away from the vending machine!”
Using the VAT to target sugary drinks? Surely our government would never do that. Exit question: Is this actually clever “strategery” on Daniels’s part, as his old boss once famously said? Everyone in the GOP field is trying to throw the hardest “true conservative” fastball to impress the base and yet here he is snapping off curves and sliders to appeal to the rest. Hmmmm.