16 February 2010


For all of his faults (and his often staggering right-wing biases about the causes of inequality), Gregory Mankiw at least tries hard to be a real economist and to thus grapple with real economic issues. Most recently, this has come in the form of calling for a Value Added Tax to help deal with the growing budget deficit.

I will not claim expertise in this area, but it does seem obvious that some additional taxation will be necessary to correct the overall fiscal picture in the long-run. The same is true of spending cuts (and those cuts will have to come from the largest parts of government expenditures; i.e. military and entitlements). For most conservative parties in Europe, the VAT has long been the preferred method of raising revenue, and there is strong evidence that it causes the least distortion to the economy. I'm perfectly willing to go along with that as opposed to some of my personal preferences (completely reversing the Bush era tax cuts, etc.)

Apparently, however, it is not acceptable to the American conservative movement, which continues to demand no new taxes ever. Veronique de Rugy is adamant about that:
I can't understand how supposedly free-market advocates can consider a VAT. No matter what the positive theoretical characteristics of a VAT are, we must fight it to our last and dying breath. The VAT is an enormous money machine for governments and there is no doubt that if we give politicians in Washington a new source of revenue we will get more government and more spending, more corruption and more waste. How can anyone really believe that Washington will use this new source of revenue to just pay off its debt?
This attitude leaves NO option for dealing with our debt. If there is no new revenue source, the only option is to either 1) gut the military entirely or 2) cut social security and medicare in half. Cutting absolutely ALL discretionary spending (and I mean all) would almost get rid of the deficit, but not quite. (And that means no food stamps, NASA, non-military intelligence, DEA, FBI, etc.)

The Bush years pretty much put the lie to the "starve the beast" theory of fiscal planning. I'm sad to see the National Review keeping it going.

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