Social Insecurity Complex: Door Number 3 ?
House Ways and Means Committee chairman Bill Thomas has irked the Bush administration by hedging in his embrace of personal retirement accounts for Social Security, but his suggested remedy for funding Social Security and Medicare might be worth consideration.
His idea? Eliminating the payroll tax and replacing it with a value-added tax.
Los Angeles Times writer Ron Brownstein reports:
"First imposed in France in 1954, a VAT taxes the increase in price at each stage of a product's production — the 'value added' — and is ultimately paid by consumers at the cash register. All members of the European Union use a VAT, with rates ranging from 15% to 25%, according to the EU website.
"A VAT would need to be set at about 14% to replace the Social Security payroll tax, fund a small individual investment account and absorb the public cost of long-term care for the elderly, according to Peter Orszag, a tax expert at the Brookings Institution in Washington. At that level, a VAT would add roughly $2,800 to the cost of a $20,000 car or $7 to a $50 pair of sneakers. But workers would save thousands if the payroll tax were eliminated in return.
"Advocates view the VAT as easy to administer and economically efficient because it rewards savings over spending.'There are three good arguments for a VAT,' said Harold L. Wilensky, a retired professor of political science at UC Berkeley, who has studied the issue. 'One, it is easy to collect. Two, it is easy to enforce. And three, it is good for the economy.'
"Thomas' ideas leap so far beyond the entrenched lines of debate over Social Security that so far, neither party appears certain how to react."
Democrats have kept mum on the VAT proposal so far, choosing instead to assail some of Thomas' goofier ideas (higher benefits for blacks and fewer benefits for women based on their average lifespans). Of course, if the VAT were to catch on, Dems would likely shred it as a regressive tax that hurts the poor.
Nevertheless, since the more solid ideas to reform Social Security -- raising the retirement ages, limiting benefits, etc. -- are non-starters, why not give this the proverbial run up the flagpole?
posted by Chase McInerney @ 1:16 PM
3 comments
3 Comments:
A consumption rather than an income tax? Brilliant! And fewer benefits for the broads? Yeah, okay.
Chase, Dems ought to think carefully a little more before they "shred" VAT as a regressive tax.
In fact, the current tax structure we have is very regressive in more subversive and hidden ways.
One of the biggest myths Dems like to perpetuate is a "soak the rich" mentality about corporate income tax. Ask the average Joe out there, and they'll tell you corporations damn sure ought to paying that income tax.
But what liberal advocates of things like corporate income tax won't tell you is that corporate income tax is really a subversive tax on you and me. The companies just pass the cost on in higher prices for goods and services. If we could crack open the corporate ledgers, we'd see they don't pay a dime. Add in all the tax break loopholes built into the current and very archaic income tax code in various states and federally, and the government is actually supporting many corporations with outright subsidies.
In case you haven't figured it out yet, you and I pay for the government out of our pockets. That means you and I are supporting corporations with subsidies.
With a VAT tax, really a national sales tax, companies would reduce their base costs, because they'd no longer be factoring in corporate income tax to game the system. The sticker price would more accurately reflect reality. And companies would also want to ensure consumers didn't stop buying. They'd compete. Some maker of shirts or cars, or someone offering a cleaning service would lower their costs. And another company would lower theirs to match it. And then another. And another.
So the total cost (with VAT added in) of goods and services wouldn't go up at all, and we would in fact see a reduction in the total cost we pay for things (and that's also with the VAT added in).
So it's not even accurate to start with the current cost of a car, for example, because under a VAT system, the base cost of a car would actually be lower than it is now. Tack the VAT on, and you're looking at a wash. Or even more likely, a cheaper car. Ergo, no more regressiveness than we have now.
You'd keep a lot more of YOUR money, and you'd decide how you'd spend it or save it. Kind of like a free nation should work.
This would work much better than -- gee, I don't know -- flushing your cash down the Social Security toilet.
And what would happen then?
People would have more in their bank accounts, they'd spend more, save more -- and the economy would soar.
The governments coffers would also grow.
And people would quickly figure out how little they needed the nanny state.
This scenario terrifies Democrats, because it would mean the apocalypse for their power base.
Um, Anonymous... I hope you didn't get the impression we're opposed to a VAT tax. We're NOT opposed, and haven't been for a long time. But what Thomas is advocating, as we understand it, is a VAT tax replacing a payroll tax and not an income tax. When I indicate that Dems will "shred" it, we're not suggesting that is necessarily a good thing. Jerry Brown was a great champion of a VAT tax (it was just a plain ol' sales tax back then) and it was a radical left idea. What's always befuddling about politics to me is how the parties and ideologies trade ideas and then pretend the game isn't partisan.
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