Originally Posted by Piobaire
Gib, this is all very well said and rather echoes things some of us have been saying here for years. When you're checking the couch for change to buy your next pack of smokes people earning 100k or more probably do seem "rich" to you but this lack of perspective should not be allowed to drive policy.
I think we need to also acknowledge, that just as there's magnitudes of difference between millionaires and billionaires, there's also magnitudes of difference between your "average" CEO and the titans of industry that are taken as representative of the class. The average CEO in the country makes somewhere in the area of 350k a year. This person actually probably has more daily stress and energy sapped from their soul as they don't have the infra-structure around them and the golden parachute that a CEO from a Fortune 500 has around them.
Lastly, as I've said before, the American left wants a Euro social democracy safety net without the mechanisms in place used to pay for them. Big VATs are standard in Euro land.
To me, the questions of changing taxes are always, will this increase government revenue, and will it impact economic prosperity more generally. Once we have a good guess on what the change will do, we can debate how those effects should be weighted and if we should proceed.
1. Does the change increase the % of GDP raised in taxes?
2. Does GDP (short-term) increase or decrease?
3. How is long term GDP growth changed?
If you look at the US over the last 30-40 years, changes in income tax rates haven't made much of a difference.
I looked at the World Bank data on taxes as a % of GDP of a variety of European countries, and what I found was interesting. Germany is almost the same as the US (around 11%), then countries like France and Sweden sit around 20%. The UK is up near 25% and all alone at 35% is Denmark. Additionally, Spain is actually less than the US.
Based on those things I would say it is inconclusive that adding a VAT will necessarily increase tax revenue as a percentage of GDP.
Next if you look at the GDP growth questions, I find it hard to believe implementing a VAT would increase GDP, and it most likely would decrease it. The growth rates of the above countries are actually almost in reverse order (except Spain which is the worst) - the US is #1 in growth with Denmark being second worst.
So ultimately, I don't think you can conclusively conclude that a VAT will able to fund a European-style entitlement system. In fact, it may cause GDP growth to slow or even go negative which would make us less able to afford such a system.
It would probably be easier to just stop spending more money on the military than all of Europe and fund an entitlement system. Not only would it free up funds for us, it would likely bankrupt those countries as they struggle to pay for their own defense and their entitlements.