In recent years, a good bit of online fracturing on the right side of the sphere has concerned arguments about the Value Added Tax. The VAT has a small cadre of fiscal conservative defenders and deficit hawks, and a dedicated and much larger group of opponents who think its very discussion is an insult to conservative/libertarian anti-tax sensibilities. While you might be tempted to avoid wasting time paying attention to such arguments — since both Minority Leader John Boehner and Majority Leader Steny Hoyer have ruled out the idea definitively, it’s not going anywhere any time soon — as a single policy issue, I find it fascinating, since few debates better crystallize the divide between the surging small government populists who distrust government and intellectual policy naifs who have learned little over the past decade about how government works.
The very idea of a VAT is a profoundly silly and pointless one, in my view, simply because it is so incredibly unlikely to come to fruition. American Democrats are unwilling to dramatically expand the amount of taxes paid for by the poor and lower middle class, and most Republicans understand that a VAT is only an improvement in the marketplace if it is a replacement for, not an addition to, the current tax code. Fiscal conservatives who support a VAT’s passage in the American experience must necessarily deny or ignore nearly every data point from its practical application in Europe and elsewhere. The evidence as collected in this new study by Douglas Holtz-Eakin and Cameron Smith illustrates how the VAT has correlated with increases in the size of government:
[W]e find a statistically significant dynamic relationship between the rate of VAT taxation and the size of government. Although no single study is definitive, this is the first rigorous evidence that a VAT causes government to grow larger. …countries that adopted a VAT did in fact experience, on average, a 29 percent increase in the size of government. …The estimated coefficient of 0.262 indicates that adopting a VAT is associated with larger government. This estimate is statistically significant. …our results shift the burden of proof to those who deny that VATs fuel increases in the size of the public sector.
What’s more, as a political matter, fiscal conservative supporters who are attracted to the sensibilities of a VAT must suggest that elected politicians from the Democratic Party would willingly barter the entirety of the existing individual and corporate income tax and replace it with this sales tax — and that in addition to this, the new populist anti-tax upsurge on the right, based primarily in the middle class and the entrepreneurial class, would willingly assent to a vast new form of taxation which would “rob” them of the vast majority of exemptions and tax breaks they currently enjoy. This is a circumstance roughly as likely as you being named king of all Londinium and given a shiny hat, and it is not the conjecture of a serious political analyst.
A perfect example of this is found in my former White House colleague Pete Wehner — a compassionate conservative former speechwriter to President Bush and author of a new book, with Michael Gerson, on the Christian challenge to the Tea Party — who compares Grover Norquist to an Orwellian caricature for this remark, in response to Gov. Daniels’ musings on the subject (which my colleagues have already covered here):
This is outside the bounds of acceptable modern Republican thought, and it is only the zone of extremely left-wing Democrats who publicly talk about those things because all Democrats pretending to be moderates wouldn’t touch it with a 10-foot poll. Absent some explanation, such as large quantities of crystal meth, this is disqualifying. This is beyond the pale.
Wehner takes much umbrage at this comment. We’ve all had our disagreements with Norquist over the years, of course, but he is a single-issue political activist, and a profoundly successful one. After decades of work, he has successfully made the tax issue a third rail on the right — in much the same way that pro-gun rights activists have made it nearly impossible for a Republican to support gun-grabbing legislation, Norquist and his allies have made talk of tax increases toxic for anyone who values their political career. And make no mistake: a VAT is a tax increase by its very design, a massive and profoundly regressive one, which predominantly hits the poor and lower middle class — those with the least financial ability to pay for it.
All this is to say: of course Norquist will find such discussion beyond the pale: he has worked his entire career to ensure that it is so. If you wish to prove Norquist has been unsuccessful, the best way to do so would be for Gov. Daniels to run on a pro-VAT platform and win the votes of Republicans in 2012. I suspect this is also rather unlikely (running for president by engaging in a series of dry academic policy debates — your ticket to success!). Wehner treats the matter as if Norquist had come into his Eisenhower Building office and torn down his beloved picture of Bobby Kennedy, when in reality Norquist was just stating a fact of American politics.
In political terms, this discussion is pointless. There is no constituency for the passage of a VAT on the right. There is no one who will pay for the massive public relations campaign to convince families that they need to say goodbye to the Republican-created pro-family tax credit — promised in the 1994 Contract, signed into law under Clinton in 1997, and expanded dramatically under George W. Bush in 2001 and 2003 — which is the primary reason so many Americans pay no federal income tax.
Taxation is power. The VAT is an intrusive, regressive, and proven government-growing expansion of power. If Wehner, Daniels, and others wish to sell such an idea to the American people, that’s their right. But in this climate, with so little tolerance for the big government expansions which occurred on their watch during the prior administration, I suspect they will find the populist anti-tax right finds such ideas just as insulting and unacceptable as Norquist does. It is better for all concerned to see things as they are.