Given that columnist Paul Krugman relied on Tax Policy Center estimates to level claims that Congressman Paul Ryan is a “flimflam man” and that Ryan’s plan to address our fiscal problems is a “fraud,” I think a defense of the Congressman is in order.
Senators John Kerry (D-MA) and Joe Lieberman (I-CT) introduced a climate bill yesterday that, among other things, establishes a cap-and-trade program for greenhouse gases. The virtue of a cap-and-trade program is that it establishes a market price for a pollutant and allows flexibility within and across regulated entities in how to reduce emissions. But any cap-and-trade program must decide whether to allocate the pollution allowances for free or through a government auction, as well as how to distribute both the allowances and any auction revenue.
I share Howard’s criticism of the Senate proposition that characterizes a Value Added Tax (VAT) as “a massive tax increase that will cripple families on fixed income and only further push back America’s economic recovery.” However, my problem with the Senate vote isn’t that it opposes a VAT; rather, it’s that it rules out any VAT, even one that is part of a broader tax reform that reduces distortionary income and corporate taxes.
Increasingly generous tax subsidies for homeowners are doing little to help the housing market. The U.S. Census Bureau reported yesterday that housing starts for October were down 10.6 percent from the previous month to a seasonally adjusted annual rate of 529,000. After rebounding from a historical low of 479,000 in April, starts have largely moved sideways and reflect a still-anemic housing market.
Our grim fiscal outlook has led to renewed calls for a value added tax (VAT). As discussed by Greg Mankiw, conservatives have conflicting feelings about a VAT. The main appeal is that a VAT taxes consumption, so shifting from our current income tax system (which is actually a hybrid of an income tax and a consumption tax) to a VAT would remove existing disincentives to save, which in turn would promote long-term economic growth.