A VAT Is Inevitable?

Nov 30 2012 @ 6:40pm

In a new policy paper (pdf), Bruce Bartlett makes the case:

[I]t is my observation that ideological dogmatism, rather than serious analysis, underlies the vast bulk of opposition to a VAT among conservatives. When, eventually, economic conditions force them to live in the real world, instead of a fantasy world where the budget can be balanced by abolishing Medicare, I think they will support a VAT just as European conservatives did.

The longer they wait to do so, the greater the economic pain we will have to go through before conservatives bow to reality and support a VAT. Even though I think we should enact a VAT as soon as possible, I am under no illusion that it is remotely feasible under current political and economic conditions. But those conditions will inevitably change if projections of future federal deficits are even close to correct and if economists’ beliefs about the impact of deficits are remotely true. They mean that sometime in the nottoo-distant future we are going to see significantly higher inflation and interest rates than we have today. At some point – I don't know when – they will pass a political threshold and politicians can start to talk honestly about the sorts of fiscal actions that will be necessary to bring inflation and interest rates down to tolerable levels.

(Hat tip: Frum)