France’s technocratic state has created many monsters but one of the great things it did for the world was when a polytechnicien and inspecteur des finances (one of the worst technocratic beasts one might imagine) invented the VAT in the 1950s. Perhaps it is by chauvinism that I like the idea of the VAT.
Uniquely among industrialized economies, the US doesn’t have a VAT. Part of the opposition comes from conservatives, but some conservative wonks frequently make the argument for a VAT, now recently with the esteemable Josh Barro.
In a characteristically clever post, Will Wilkinson responds with the usual conservative argument that a VAT is a “money machine” that would make it hard to “starve the beast.”
(There’s a DC joke that goes something like: “We can’t get a VAT because conservatives think it raises lots of revenue and liberals think it’s regressive; we’ll get a VAT once conservatives realize it’s regressive and liberals realize it raises tons of revenue.”)
I should say at the outset that I do have sympathy for conservative objections to the VAT. I have a soft spot for American exceptionalism (and national exceptionalism in general); generally, to me, the idea that a US policy stands out is a presumption for that policy, not against it. I also strongly agree with the conservative insight that taxes need to, to put it frankly, hurt. It needs to sting to send your money to the taxman, that way (conservative version) you’ll want lower taxes (kindlier, good-government version) you’ll want more accountability out of your dollars.
But this idea that taxes need to hurt, or at least be felt, is connected to another conservative meme which has recently resurfaced: the idea that there is some kind of injustice to the fact that a large number of Americans pay no income tax. If most people aren’t hurt by taxes, they’ll demand ever more taxes on Other People to pay for ever more services that they don’t pay for directly. I have a lot of sympathy for that idea. It’s also one reason why I am such a staunch opponent of payroll taxes (the other being that it’s a tax on jobs).
I remember when I was a teenager and a student, I would argue to family members that taxes are great because they pay for public services and so on. (I think taxes should be low; still, they’re awesome.) The inevitable patronizing response would come: “You’ll see, you’ll feel differently when you have to pay taxes.” This would send me into fits of boiling anger. First of all, was the presumption that I couldn’t—that no one should—differentiate between my own particular situation/interest and the general interest. But most of all, I would scream (inwardly, in most cases), I DO pay taxes! Every day! Twenty cents out of every franc/euro I spend goes to the government in VAT!
And indeed, when Republican politicians opine that lots of people “don’t pay tax”, a lot of wonks would note that most who don’t pay income tax do pay various other taxes, and those that don’t are so poor that it would be cruel (and impractical) to force them to.
What does this all have to do with VAT?
Well, if you want to achieve the conservative policy goal of making most people “feel” taxes and even have them hurt a little bit, you should have a VAT. But you should do it right: along with the VAT, you should mandate that all prices be shown pre-tax (as it already is in most US states for sales tax, I believe), and forbid the showing of post-tax prices.
Whenever someone buys something, they would have to do some basic arithmetic (and forcing all Americans to jog their brains by doing basic arithmetic on a daily basis would certainly be a judicious policy achievement in itself) and think about how much of their money goes to the tax man. It would ingrain in everyone that things have a “real” price, plus money that goes to Uncle Sam that they have to pay on top of it. And that daily reminder would be associated with the minute, but real pain of having to do math in your head, which is unpleasant for the vast majority of people. (Heck, it is for me, and I have a job that requires non-trivial numeracy and involves lots of playing with numbers.)
It’s obviously impossible to be 100% sure (Jim Manzi would have to design an experiment), but I’m inclined to think that in such a context, citizens would be highly attuned to proposed raises in the VAT, since they’d have to compute new numbers several times a day, and more inclined to demand accountability for the newly-raised dollars.
You would also achieve the conservative/good-government goal of making everyone, not just a few, feel/realize that they and everyone else are paying into the Treasury for common goods, instead of a nebulous Other paying for their services.