Sunday, February 14, 2010

Mankiw: VAT Is Really Bad, But, Hey, I'm All for It

In today's NYT, Greg Mankiw does his very best to, as always, be on both sides of all issues. He does note that President Obama's spending is out of control, and reminds us that a VAT may be coming:
Nancy Pelosi, the House speaker, gave a hint in an interview last October when she said a value-added tax was “on the table.”
He then explains how bad VAT is, distorting the economy on many levels:
A value-added tax is like a sales tax, but rather than being collected entirely at the retail store, it is collected in stages along the chain of production. Many European countries use it, and it is one of the more efficient ways to raise revenue. So efficient, in fact, that some conservatives fear that it would too easily fuel the growth of government.

YET despite its efficiency compared with other taxes, a VAT does not offer a free lunch. It would raise consumer prices, lower real wages, discourage work and depress economic growth. It would also break President Obama’s pledge not to raises taxes on the middle class.
But after warning about all the dire consequences of a VAT, he ends up endorsing it:
But unless the president revises his spending plans substantially, he will have no choice but to find some major source of government revenue. Ms. Pelosi’s suggestion of a VAT may be the best of a bunch of bad alternatives.
Doesn't this guy even have the balls to stand up against a VAT at this early theoretical stage? It's clear he knows VAT is bad. It's clear he knows government spending is out of control. It is absolutely remarkable how easy these guys bend to the way government winds blow.

Did Ayn Rand nail this guy, or what?:
They have no concern for facts, ideas, work. They’re concerned only with people. They don’t ask: “Is this true?” They ask: “Is this what others think is true?” Not to judge, but to repeat. Not to do, but to give the impression of doing. Not creation, but show. Not ability, but friendship. Not merit, but pull.

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