Indiana's Republican Governor Mitch Daniels wears leather, rides a Harley-Davidson motorcycle, and once fished discarded quarters out of a toilet bowl so he could pay for a beer. (Okay, not your typical Princeton graduate, but points for originality.)We're talking about Daniels because of his recent statement before the Hudson Institute that a VAT would make sense for America under the proper circumstances. The qualifying circumstance he had in mind was combining a VAT with a flat-rate income tax. Hallelujah! We finally have a prominent conservative who gets it right on VAT and isn't afraid to speak his mind, even if that means alienating anti-tax zealots in his own party. In case you're wondering, Daniels refuses to sign the anti-tax pledge promoted by the conservative group Americans for Tax Reform. . . . .
First Observation: The governor is correct on the need to tax consumption at the federal level. VAT makes sense for several reasons. Permit us to highlight a few of them for the benefit of readers new to the issue: • VAT doesn't harm the economy with market-distorting biases;• VAT doesn't discourage personal savings; • VAT paid on business inputs is fully recoverable;• VAT raises huge amounts of revenue that could help shrink the deficit;• Exports are zero-rated under a VAT, a result the income tax can't match.Second Observation: We feel obliged to critique Daniels' comment about coupling VAT with flat-rate income tax. That suggestion strikes us as rather unusual. It certainly falls outside the conventional orthodoxy.. . . .
Sorry, the VAT Bastard can't get behind the flat-rate income tax. That's so 1990s. Seems like an idea that's already had its day and failed to gain traction. Nevertheless, we are genuinely appreciative that Governor Daniels is willing to speak of VAT. . . . Thank you, Governor.
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