This thread inspired me – I am pro-VAT. Specifically, given the assumptions that (pragmatically speaking) cuts in discretionary spending, cuts in defense spending, reductions in medicare or social security reform will ever happen*,
I’d favor a 15% VAT (half that for housing, none on food), with exports exempt. In addition, the AMT should be repealed and the corporate tax rate cut in half, as well as personal income tax reduced to zero on family incomes below $100,000. Plus, by law 50% of all revenue from the VAT would be required to pay down the deficit for the first ten years.
In an ideal world we’d also implement single-payer for immense cost-savings and increased coverage, freeing up the revenue from the VAT even further, and while I am on a roll let’s break the strangle-hold on prescription drugs’ pricing, allow drug reimportation and a truly global market, and dial back Medicare part D.
No, none of that is gonna happen, you’re right. Still, lets take this as a starting point for discussion. Can we craft a policy that makes sense? and is acceptable to conservatives and liberals alike as a good compromise for making things simpler and better?
Incidentally, I wrote a couple of years ago about an idea to abolish corporate taxes entirely, again in the context of a VAT. Kevin Drum proposed the following deal:
The corporate income tax goes away. It’s replaced by a VAT plus an increase in capital gains and dividend taxes to the same level as the tax on income. (Added bonus: the whole “double taxation” argument goes away since corporate profits aren’t taxed in the first place.) And the whole thing is used to fund national healthcare (along with the payroll taxes and general fund revenues that are already dedicated to healthcare). States could be encouraged to follow suit by agreeing to pick up the Medicaid costs of any state that kills its own corporate income tax.
Big business ought to love it. Their income taxes go away, and with it whole platoons of their accounting departments. No more relocating corporate headquarters to Aruba! Healthcare also goes away, which promises to save them both money and hassle. The replacement tax, a VAT, is easy to administer and is directly passed on to customers, much like a sales tax. Every business would be on a level playing field, regardless of size or industry.
* and actually I am against any of those four things happening anyway. But for the sake of argument, lets just assume they won’t happen, regardless of whether that’s good or bad.
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While you’re interested in drug-reimportation, why don’t we cut to the chase and get rid of patents and outlaw drug development. Removing the only source of paying for drug development is the same thing; why not be explicit about it? Trading universal, inexpensive coverage for advances in medical technology is a reasonable position, and not one that you need to be ashamed of holding.
You’re against social security reform happening (political possiblity aside)?
Why?
But in any case, while I’m all for a simplification of the tax code, and abolishing the “corporate income tax” joke, I see no need to add a VAT, or yet another layer of dead hand on top of all economic activity.
Less government, not more.
(And the idea that State healthcare, per Drum, will make compensation competition “go away” or “save companies money” is fallacious.
Someone is paying for a State health plan, and since we grant the abolition of even the pretense that anyone but taxpayers are paying for it, guess what that means to companies?
It means they have to pay their employees more to compete, out of that “savings” – all it’s done is shift the cost from the employer’s ledger to the employee’s. Total compensation won’t change – or it’ll decrease in value due to State inefficiency.
I don’t trust the State to run anything efficiently, let alone a monopoly on health care. It’s a disaster, not a savings.)
Removing the only source of paying for drug development is the same thing; why not be explicit about it?
thats your ideological opinion; i dont agree thats the case. I have seen first hand the money that the drug companies throw at marketing, junkets for physicians, free samples by teh truckload, etc. if the drug companies want to make their claim that the US price inflation for their products are the sole pillar funding their R&D, then lets see their books, prove it. That they refuse speaks volumes.
And the idea that State healthcare, per Drum, will make compensation competition “go away” or “save companies money” is fallacious.
fallacious? nope. See the VA hospital system; also see the example of the railroads:
http://www.washingtonmonthly.com/features/2009/0903.longman.html
There is in fact a great history of successful government fixing broken industries and running a business well.
my opposition to soc sec reform is simple; the stock market is too volatile. Plus, social security’s trust fund is doing really quite well, and minor modest changes would likely extend the program. And since fertility rates in the US are rising, theres good news long term on that front. Soc sec is really fine; reform would actually kill it. (yes thats a feature, not a bug, of most “reform” proposals).
I’m not opposed to a VAT as part of a revenue-neutral tax reform package. It depends on the exact numbers, but your proposal or Drum’s sounds like an excellent starting point.
I would want a constitutional amendment capping the VAT and income tax rates, though. A major concern I’d have would be the risk of tax rates creeping back up over time because the VAT would hide much of the tax from the people who end up paying it.
If we’re talking about Obama’s trial balloon of a VAT as a flat out tax increase, though, I’m dead-set against it. There’s way too much fat in the budget that needs to be cut before we can even think about raising taxes. We can start by cancelling the unspent portions of TARP and the stimulus package.
I have seen first hand the money that the drug companies throw at marketing, junkets for physicians, free samples by teh truckload, etc. if the drug companies want to make their claim that the US price inflation for their products are the sole pillar funding their R&D,
Drug companies spend money on marketing, junkets, and free samples because it helps them sell their products and bring in more money than they cost. Suggesting they cut marking to save money is like suggesting they shut down their factories to save money.
It’s basic economics that price controls make the product less profitable, leading to less investment in that product. Drug reimportation is a back-door price control which piggybacks on other countries’ price controls. Pass drug reimportation, and spending on medical R&D will go down. It probably won’t shut down drug research or bankrupt the drug companies, but there will be viable drugs that won’t get funded because of it.
then lets see their books, prove it. That they refuse speaks volumes.
They don’t refuse. They’re publicly traded companies, so they publish their books every quarter. There’s not much detail, but you can go to any publicly traded drug company’s quarterly and annual reports and see their expenses broken down between R&D, COGS, SG&A, etc.
my opposition to soc sec reform is simple; the stock market is too volatile.
So are tax revenues. Every means of saving money over the course of decades is risky; all that changes is the shape and appearance of the risk.
Plus, social security’s trust fund is doing really quite well,
The trust find is doing quite well the same way mortgage-backed securities were doing quite well a year or two ago. The trust fund consists of $2.5 trillion the government has lent to itself and spent. To redeem it, the government must either start running a surplus or find someone willing to lend it a few trillion more dollars than they’ve already borrowed. Obama’s current fiscal policies are conducive to neither contigency.
and minor modest changes would likely extend the program.
This is absolutely true. All that is needed to keep Social Security solvant in the long-term is to index benefits to prices rather than wages. Of course, this will make the rate of return on our payroll taxes even more abysmal than the current 1-2%.
There is in fact a great history of successful government fixing broken industries and running a business well.
We talked about the Conrail article last week. The government, through shrewd investment and business acumen, managed to turn $7 billion into $2 billion in only 12 years.
Soc sec is really fine; reform would actually kill it. (yes thats a feature, not a bug, of most “reform” proposals).
Absolutely. If you were to offer to cut my payroll tax in half and let me invest it myself, and in exchange I give up all social security benefits, I’d jump on the offer in a second.
A VAT would destroy the economy. It directly taxes the act of being productive. When you tax something, you get less of it.
Plus, by law 50% of all revenue from the VAT would be required to pay down the deficit for the first ten years
This is nonsensical. How can something be “required to pay down the deficit?” All taxes go against the deficit; by definition a deficit is spending minus taxes.
let’s break the strangle-hold on prescription drugs’ pricing, allow drug reimportation and a truly global market, and dial back Medicare part D.
Sure. Who needs drug research anyway?
then lets see their books, prove it. That they refuse speaks volumes.
What the hell are you talking about? The major pharmas are public companies. They report their books every year by law.
There is in fact a great history of successful government fixing broken industries and running a business well.
Only when gov’t itself broke the industry, as with railroads.
The Soviet Union was based on the premise the government could run industry more efficiently. Remember how well that worked out? Even the Communist Party in China has given up that idea.
Absolutely. If you were to offer to cut my payroll tax in half and let me invest it myself, and in exchange I give up all social security benefits, I’d jump on the offer in a second.
I’d even let you keep all the money I’ve already paid in.
There is in fact a great history of successful government fixing broken industries and running a business well.
Yep, they fixed the railroads so well they had to do it again. Just like with Chrysler.
In an ideal world we’d also implement single-payer for immense cost-savings and increased coverage,
Immense cost savings I’ll believe as health care providers will have but one financial interest: reducing costs to their client – the US gov’t. Of course, this also means they won’t give one whit about you, the patient, because what are you going to do? Fire them? So long as they hold down costs, the quality (or lack thereof) of customer service is completly irrelevant.
What’s needed is to increase their accountability to their customers, not shield them even further from them.
“That they refuse speaks volumes.”
When have these publicly traded companies refused to disclose how much money they spend on R&D versus advertising?
(incidentally, how do you expect physicians to keep up with the latest news in medical advancements? Do you have some sort of scheme whereby that’s free?)
And do you have any idea of the staggering amounts of money spent on research and development? The amount of money necessary to actually do stage I and stage II trials? The amount of money it takes to try this over and over on drugs that never make it all the way through to the approval stage?
“If we only got rid of profit, we could have everything for free” is not a sensible position. There is, certainly, a lot of money spent on drugs, but unless you’re going to claim that drug companies have a 90% gross income advertising budget, you’re going to have to explain where else the difference between brand name drugs and generics comes from (reimportation being, in essence, a drug being automatically a generic, though that’s not the actual mechanics).
Even supposing that the drug companies spend a large fraction of their gross income on advertising, you have to assume that they bring in more money than they spend on advertising, or they wouldn’t do it (even if you assume them to be greedy, it’s kind of silly to assume them to be incompetently greedy). So if they cut their advertising budget, they’ll have even less money for R&D (since advertising has to bring in more money than is spent on it). And in the face of reduced prices, do you really think that drug companies will move to reduce income even further by cutting back on their advertising budget?
When your position is “we can have it all with no trade-offs!”, your standard explanation should be something better than demonizing drug companies and then suggesting that we perform an exorcism.
The notion that the government can’t do anything right is not just belied by the current VA medical system and related programs, it’s also belied by the amazingly competent job the military does these days in all sorts of areas.
A bigger, better trained, better equipped military is not “less government” by the way. ;-)
Sure, the Soviet military was successful too. No one is arguing the military should be privatized.
A command structure is just as obviously necessary for the use of force as it is obviously unsuited for managing an economy.
the drug companies do not open ther books, in terms of revealing what they spend their “R&D” budget specifically on and what that mney is used for. SEC filings and whatnot are irrelevant and do not give insight into whether the industry truly is spending teh money they claim to be. In fact some of the money they claim is spent on R&D amounts to marketing, like repackaging old drugs. Estimates by outside analysts put R%D at about half the marketing budget.
I will have a post later on this specific issue as its become a tangent and got away from the discussion i was trying to push – though Eric, your response for the most part was great and I wil have to think about some of yoru points more fully.
the bottom line is that there is no ideological reason for conservaives to be opposed to a VAT especially since it can ultimately be more efficient and fair. The primary opposition shoudl be from progressives (and in fact the crew at daily kos indeed hated the idea for its regressiveness, in my diary on the topic i posted there).
Only when gov’t itself broke the industry, as with railroads.
nonsense. read the Longman essay. It goes into the histiry quite exhaustively of what went wrong and why.
Sure, the Soviet military was successful too. No one is arguing the military should be privatized.
Governments tend to be pretty good at blowing things up. It’s when they get away from their core strength that the quality drops off.
In addition, the AMT should be repealed and the corporate tax rate cut in half, as well as personal income tax reduced to zero on family incomes below $100,000.
Seriously, how long do you think that would last?
Would it even last past enactment? Tying it to funding some specific program dooms any other tax cuts.
That’s my single biggest problem with VAT. It would be corrupted even before it was born. That is the nature of politics. The transition would not clean out the old corruption, but rather leave only the old corruption in place.
On the merits, it is a tax directly on production. It changes the emphasis of taxation. That may or may not be desireable.
Ah, you were using “Social Security reform” as shorthand for “Social Security transformed into a stock market surrogate”.
There are other reforms that can and should be made, however – like raising the age cap significantly, and stricter means-testing on payouts.
Could you please provide more detail on “the railroads” as something the Government runs efficiently? Because Amtrak sure as hell isn’t, and the Government doesn’t run BNSF or UP. Similarly, the British state-run railroads are hardly models of efficiency.
The VA as a nationwide model is, from what I’ve heard from Veterans, bloody terrifying.
(As is the idea that something significant other than sales revenue is funding drug discovery. Eric’s already covered that, so I won’t in detail.
Where do you imagine the money comes from, if not seling drugs, though?
Or do you imagine, somehow, that it’s just not expensive to develop drugs, despite the huge failure rates and the costs of even first-round FDA testing?
[And if it's cheap, why isn't everyone doin' it, and on the cheap?]
Derek Lowe has been posting about this sort of thing for years… and he has the advantage of doing drug development for a living.
Simply put, it’s extravagantly expensive and risky to develop drugs, especially if one is going to be concerned with safety. Money to pay for that has to come from somewhere, or nobody will do it.)
Continuing on from Sigivald
Where do you imagine the money comes from…?
Money is nothing. It’s a token placeholder (proxy) we use to represent a concept of value. The relationship between money and value is whatever we (as market participants) decide it is. On a local scale, it is suitable for use as a proxy for value. When you try to scale it up to an entire currency or even the global economy, there are new failure modes introduced. One particular emergent failure mode is called “hyperinflation”.
For example, it’s possible to look at Social Security from a monetary stand point, and say that it’s in some trouble, but not terrible. If you look at it from a production and consumption of value standpoint, two workers per retiree does not look so good. Maybe we can get there with automation, but maybe not. Its possible we don’t (and/or won’t) have the technical skills to support that level of automation. We may be in far more serious trouble than the monetary numbers say. If we are, then hyperinflation may be the easiest method of restoring the balance. The way Social Security is indexed, though, a lot of other things are going to get creamed before balance is found.
To my mind, VAT is a particularly nasty tax, in that it is attached to much of the production of value. It directly discourages the production of value. Maybe it pushes money into other paths we want supported, or maybe it pushes it into paths that essentially produce negative value (ie destroy existing value).
SEC filings and whatnot are irrelevant and do not give insight into whether the industry truly is spending teh money they claim to be.
I’m a C.P.A., Aziz. You don’t know what you’re talking about. They have to disclose all of it. They have shareholders, you know. They can’t just throw money around at random without letting the owners of the company know where it went.
Estimates by outside analysts put R%D at about half the marketing budget.
Even if that were true, so what? You don’t think new products need to be advertised? You don’t think companies should be allowed to recoup marketing costs?
nonsense. read the Longman essay. It goes into the histiry quite exhaustively of what went wrong and why.
I’m not sure YOU read the essay.
“shackled by a regulatory regime that, under the Interstate Commerce Commission, overwhelmingly favored shippers with low rates.”
What went wrong was the government was regulating railroad rates so badly the railroads went bankrupt. Then the government took over the business and found out, hey, we need better rates. It’s asinine to characterize this as a success of government over business.
“the bottom line is that there is no ideological reason for conservaives to be opposed to a VAT ”
Sigh. Taxing the act of being productive will lead to people being less productive. Do we really want to be as poor as Europe?
The income tax is also a tax on being productive.
Income tax is similar, but it lays across a slightly different place.
It’s a tax on withdrawls from aggregated capital, mostly.
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