Tumblr Icon RSS Icon

Tax Policy Fantasyland

By Matthew Yglesias on October 14, 2009 at 4:44 pm

"Tax Policy Fantasyland"

Share:

google plus icon

Greg Mankiw sings the praises of the Value Added Tax, offering affection for the efficiency of its flat- and consumption-oriented nature:

My bottom line: If I could replace our current tax system (including the personal income tax, corporate income tax, payroll tax, and estate tax) with a VAT, I would gladly do it.

As long as we’re talking about hypothetical scenarios, I would join him if we’re allowed to throw state and local taxes into the mix as well. The thing of it is that once you consider state and local taxes, the US tax code is barely progressive at all:

howprogressiveareourtaxes-figure1-version2

In theory, I think the tradeoff between tax efficiency and tax progressivity could be quite the difficult dilemma. But what we’ve got, when considered overall, is a system with lots of inefficiency and almost no progressive impact. That, I think, makes the tradeoff easy. The VAT-only system wouldn’t be my first choice tax system by any means, but the case that it would be an improvement over the status quo seems very strong to me.

Tags:

‹ PREVIOUS
Planning in the Climate Bill

NEXT ›
Nobody Knows Who Max Baucus Is

By clicking and submitting a comment I acknowledge the ThinkProgress Privacy Policy and agree to the ThinkProgress Terms of Use. I understand that my comments are also being governed by Facebook, Yahoo, AOL, or Hotmail’s Terms of Use and Privacy Policies as applicable, which can be found here.