Robert Samuleson gets in wrong on the VAT
Robert Samuelson writes in today's Post about a VAT, which follows George Will's criticisms of yesterday. Both got it wrong, at least partially.
Samuelson fears that a VAT would hurt young families and that it would have too many loopholes. This would only be true without the inclusion of a transfer to employees with families to help them pay the tax. According to a recent study by the Tax Policy Center of Brookings/Urban, such a subsidy would allow a much broader tax. Indeed, if you make the subsidy broad enough, you could solve the demographic problems in Social Security by encouraging people to have children and pay for such a subsidy by voiding the home mortgage deduction and the property tax deduction. Overall, this would change the distribution of housing provided, but not the amount, as the biggest expense for growing families is a bigger home.
Will fears the opposite, the elderly will pay too much as they spend down their savings. Whether this is true or not depends on how you handle IRA withdrawls. If you leave traditional IRAs untaxed, or count them as income with a much higher floor for taxation (say $75,000 for individuals and $150,000 for joint filers), you will find most of the elderly avoiding any additional taxation. Roth IRA holders would have to be given some form of rebate, but that won't break the budget. Will also says that the income tax should be repealed with a VAT.
Will is wrong. What should happen, however, is that the income tax should have a higher floor, as I described above, so only the truly wealthy pay income taxes (Michael Graetz, a Republican, proposes this, though with a lower floor than I favor and with more deductions). Non-retirement payroll taxes should also be part of the VAT, or better yet merged entirely into an employer-based levy so that these can be hidden from view and increased to cover hospitalization insurance under Medicare, as well as Medicaid for seniors who need catastrophic care.
I find it amusing that in two days, one Post essayist says seniors will be hurt and then the other says the young will be hurt. They are both wrong.
Samuelson fears that a VAT would hurt young families and that it would have too many loopholes. This would only be true without the inclusion of a transfer to employees with families to help them pay the tax. According to a recent study by the Tax Policy Center of Brookings/Urban, such a subsidy would allow a much broader tax. Indeed, if you make the subsidy broad enough, you could solve the demographic problems in Social Security by encouraging people to have children and pay for such a subsidy by voiding the home mortgage deduction and the property tax deduction. Overall, this would change the distribution of housing provided, but not the amount, as the biggest expense for growing families is a bigger home.
Will fears the opposite, the elderly will pay too much as they spend down their savings. Whether this is true or not depends on how you handle IRA withdrawls. If you leave traditional IRAs untaxed, or count them as income with a much higher floor for taxation (say $75,000 for individuals and $150,000 for joint filers), you will find most of the elderly avoiding any additional taxation. Roth IRA holders would have to be given some form of rebate, but that won't break the budget. Will also says that the income tax should be repealed with a VAT.
Will is wrong. What should happen, however, is that the income tax should have a higher floor, as I described above, so only the truly wealthy pay income taxes (Michael Graetz, a Republican, proposes this, though with a lower floor than I favor and with more deductions). Non-retirement payroll taxes should also be part of the VAT, or better yet merged entirely into an employer-based levy so that these can be hidden from view and increased to cover hospitalization insurance under Medicare, as well as Medicaid for seniors who need catastrophic care.
I find it amusing that in two days, one Post essayist says seniors will be hurt and then the other says the young will be hurt. They are both wrong.
posted by Michael Bindner at 10:11 AM
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