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Is The VAT Obsolete?

By Matthew Yglesias  

"Is The VAT Obsolete?"

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The intra-libertarian debate on whether it would be better from a right-wing point of view to finance government spending through a Value-Added Tax or else to deploy the power of magical thinking to make revenue unnecessary is interesting in its way.

But what I wonder is given that the US doesn’t have a broad national consumption tax like a VAT or a GST, aren’t these ideas obsolete? The case for regressive consumption taxes is that they’re dollar-for-dollar more economically efficient than progressive income taxes and the net impact of taxes and transfers is progressive anyway so the biggest thing to worry about, inequality-wise, is how economically feasible it is to make the taxes.

The thing is that whether you buy that argument or not, it seems to me that it clearly applies with full force to more ecologically oriented consumption taxes that have other benefits. That would mean a carbon tax, primarily, but also taxes on other kinds of greenhouse gases (which tend to be rarer, but more potent) and taxes on gasoline or or household energy use. In terms of wonk-approved politically-infeasible tax measures, it seems to me that this kind of thing is where all the action is. You’d get the same benefits as with a VAT/GST proposal and tackle climate change for the long run and achieve substantial public health benefits through short-term air quality.

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