[Paleopsych] NYT: Bruce Bartless: Feed the Beast
checker at panix.com
Thu Apr 7 15:08:15 UTC 2005
Opinion > Op-Ed Contributor: Feed the Beast
[If I were wearing my incrementalist, establismentarian hat, I would agree
that a value added tax makes sense. It does seem that voters will demand
more and more for health care. Health care, as a percentage of GDP, is a
rising function of GDP/capita, irregardless of the extent to which it is
publicly provided. This means that public monies displace private monies.
Also, there's no correlation between health care spending and health.
These are two of many counter-intuitive results economists come up with.
See Charles Phelps's standard textbook, Health Care Economics_.]
By BRUCE BARTLETT
Great Falls, Va. -- GROWING numbers of policy analysts and
politicians are saying that it may finally be time to consider a
value-added tax as part of our federal revenue system. In years past,
I would have been in the forefront of those denouncing the idea. But
now, reluctantly, I have joined the pro-V.A.T. side. Here's why.
There are many arguments against a value-added tax, which is
essentially a sales tax that applies at each stage of production. It
is costly to put into effect, and it hits the poor and the elderly
hardest because they spend a higher percentage of their income.
When the idea of a value-added tax for the United States first arose
during the Nixon administration, there was no question that it would
have fueled the growth of government, just as it did in Europe. As a
recent Wall Street Journal editorial pointed out, in the countries
that established a V.A.T. in the 1960's and early 1970's, taxes as a
share of the gross domestic product have risen significantly.
But the main reason for this is that it was too easy to raise V.A.T.
rates amid the double-digit price increases of the inflationary
1970's. In those days, there were many economists who still believed
that budget deficits caused inflation, making it easier to delude
people into thinking that higher taxes were necessary to get inflation
Those countries that adopted the value-added tax since the end of the
great inflation, however, have been very restrained in raising rates.
Of those countries that had a V.A.T. before 1974, all have raised
their rates by an average of seven percentage points. But of those
countries that established a V.A.T. since 1974, the average increase
is just one percentage point, and a majority have not increased their
rates at all.
In the 1980's and 1990's, I thought it was possible to restrain the
growth of government by cutting taxes. This would "starve the beast,"
as Ronald Reagan used to say, and force government to live on its
allowance. And after Republicans got control of Congress in 1994, I
thought the means had finally come to make a frontal assault on the
I have been sadly disappointed. After an initial effort at restraining
Medicare spending - squelched by President Bill Clinton's veto pen -
Republicans in Congress have become almost indistinguishable from
Democrats on spending. They have been aided and abetted by President
Bush, who not only refuses to veto anything, but also aggressively
worked to ram a $23.5 trillion (of which $18.2 trillion must be
covered by the general revenue) expansion of Medicare down the throats
of the few small government conservatives left in the House.
This behavior has led me and other conservatives to conclude that
starving the beast simply doesn't work anymore. Deficits are no longer
a barrier to greater government spending. And with the baby-boom
generation aging, spending is set to explode in coming years even if
no new government programs are enacted.
As Alan Greenspan, chairman of the Federal Reserve, told the House
Budget Committee on March 2, "The combination of an aging population
and the soaring costs of its medical care is certain to place enormous
demands on our nation's resources and to exert pressure on the budget
that economic growth alone is unlikely to eliminate."
Yet many conservatives continue to delude themselves that all we have
to do is cut foreign aid and get rid of pork barrel projects to rein
in the budget. But unless health spending is confronted head on, even
the most draconian cuts in discretionary spending won't be enough to
restore fiscal balance.
I am no deficit hawk. For decades I have argued that the negative
effects of deficits are generally exaggerated. But unless spending is
checked or revenue raised, we are facing deficits of historic
proportions. It is simply unrealistic to think we can finance a 50
percent increase in spending as a share of gross domestic product -
which is what is in the pipeline - just by running ever-larger
deficits. Sooner or later, that bubble is going to burst and there
will be overwhelming political support for deficit reduction, as there
was in the 1980's and early 1990's.
When that day comes, huge tax increases are inevitable because no one
has the guts to seriously cut health spending. Therefore, the only
question is how will the revenue be raised: in a smart way that
preserves incentives and reduces growth as little as possible, or
stupidly by raising marginal tax rates and making everything bad in
our tax code worse?
If the first route is chosen, the value-added tax is by far the best
option available to deal with an unpalatable situation. Absent any
evidence that the White House and Congress are prepared to restrain
out-of-control health spending, I see no alternative.
Bruce Bartlett is a senior fellow at the National Center for Policy
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