Friday, December 17, 2010
Democracy: A Journal of Ideas, The 10 Percent Solution: How Progressives Can Stop Worrying and Love a Value-Added Tax
, by Andrea Louise Campbell
(MIT, Department of Political Science):
The nation’s fiscal situation is bleak. Although current deficits have garnered the most attention, of greater concern is the long-term mismatch between projected revenues and spending–gaps too great to plug with borrowing for fear of triggering a debt crisis. We all agree on the need to restore fiscal balance. But too much of the focus has been on the spending side, from Tea Partiers who rage about the size of government but have difficulty parting with their Social Security and Medicare checks, to more sober outlets like the National Academy of Sciences, whose Choosing the Nation’s Fiscal Future report earlier this year also took an anti-spending tone. The fact is that we need to take a look at the tax side of the ledger as well.
The federal government desperately needs new revenue. To raise revenues, many progressives point to the corporate and individual income tax, urging the closing of loopholes on the corporate side and the raising of top marginal rates on the individual side. I would like nothing better myself. But the prospects for substantial new revenue from these sources are dim. Thirty years of successful conservative attacks have made the idea of raising the individual income tax politically toxic–since, after all, it’s imposed most heavily on the most vocal and organized segment of society. Meanwhile, global competition constrains increases in the corporate income tax.
Instead, we need a new source of revenue, one that can finance a robust public sector for the twenty-first century. The place to get it is a carefully designed value-added tax (VAT). Much discussed in academic circles for decades, a VAT is now on the Washington agenda, the subject of many recent Beltway conferences. Most progressives reflexively oppose a VAT as regressive, and to be sure, it can be that. But properly structured, a VAT’s regressivity can be mitigated. If a VAT is truly under consideration, it is crucial for progressives to engage the debate and bring to the table a VAT designed to achieve not just fiscal balance but progressive goals as well. The plan outlined here would capitalize on the VAT’s attractive features–chiefly its ability to raise a significant amount of revenue with relative political and economic ease–while carefully blunting its regressivity. Linked to a set of strong protections for ordinary citizens, a VAT can be a key component of a progressive package benefiting lower- and middle-income Americans.