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3.03.2005
One Tax to Rule Them All Greenspan’s testimony this week to the House Budget committee continues to test one’s sense of disbelief. It’s one thing to honestly say you don’t think an Asia-wide sell off of US Treasuries is imminent, but it’s another thing to indirectly voice support for a consumption tax. Greenspan is saying the latter because the alternative minimum tax is projected to grab a larger number of Americans by the end of the decade. President Bush, (naturally) wants to abolish the AMT despite projections that it is the only mechanism to prevent limit structural deficits. In other words, the AMT’s future ability to generate revenue will limit how big the deficit can grow. If it is abolished, there is a serious potential for freefall. Greenspan acknowledges that after reforms in 1986 there have been continued complications of rules and exemptions. Well, duh. Do you really think the people who can afford accountants are going to pay their fair share? Simplify the tax code is probably a good idea anyway, but consumption taxes will probably not get the job done. This is for the same reason that Bush loathes the AMT: no deductions. Unless you have consumption taxes with no deductions (like a VAT), deductions must be priced into marginal rates. Supporters of a national sales tax would find varying rates on what you buy: food might have none, but expensive items like homes or automobiles could have a 50% federal tax rate attached to them. The other option is to levy on tax rate on all purchases. Other countries do this, but apply a smaller rate over several times creating the value added tax or VAT. Prices would rise, but the most revealing impact would be reluctance to manufacturer or process goods in the US. Outsourcing would increase because importing ready-to-sell goods would limit the number of times the VAT could be assessed. Which begs the question if there can ever be, with apologies to J.R.R. Tolkein, one tax to rule them all, and in the darkness bind them? As a matter theory, probably so. It just seems as a matter of practice that the political consequences would be so unsavory as to ensure it would never pass. |
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