Will US conservatives embrace VAT?

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Discussion of a value-added tax in the US has long been limited to academics and political extremists. That changed when Senator Kent Conrad, chair of the Senate Budget Committee, recently spoke in favor of including VAT in the forthcoming congressional discussion of federal tax reform.

Any VAT proposal will face stiff opposition from American conservatives who would prefer to reduce taxes at every turn. Resistance to a VAT will be all the more hostile if, as rumored, it will be used to support a universal, socialized healthcare system. However, if, and only if, that fight is lost and publicly funded health care becomes an inescapable conclusion, the political right could actually come to favour a value-added tax.

Just walk in to a barber shop in any conservative American community and ask the patrons about their objections to universal health care. There will be those who complain about creating a culture of dependence on the government, those who are concerned about negative effects on the quality of health care, and those who simply do not want to pay other people’s medical bills. This last group might be most inclined to warm up to VAT.

The main criticism of VAT is its potentially regressive nature. Although everyone pays the same markup on purchases, VAT represents a higher percentage of total income for the poor than the wealthy. It is the burden on the disadvantaged, however, that may placate some conservatives because it means that everyone, rich or poor, will be paying for at least some of their own health care. Compared to an increase in the current progressive federal income tax, a value-added tax might be seen by some as a lesser evil.

The end of law

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The end of the law is, not to abolish or restrain, but to preserve and enlarge freedom.

John Locke

Blog Review 977

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Well, if you start out by asking the wrong questions about the virtues of different labour market models then you're obviously going to come up with the wrong answers.

Are we bloggertarians making too much of the avariciousness of the politicians? Mhm, could be, eh? Naaah.

No, really, we're not making enough of it.

And why do they seek to minimise their tax bills anyway? Doesn't government know how to spend the money better than any indivdual?

No, we really don't want to win the bidding war for GM Europe. One of those battles it's far better to lose.

And the Chrysler and GM bankruptcies are creating problems for all other unionised firms as well.

And finally, something to cheer you up. Laughing babies.

Dealing with climate change

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A new report out telling us all that we've been very naughty boys and that as it is we that stunk the planet up then it's us that has to pay to deal with it.

A fair point of course, that those responsible for damage should pay to repair or alleviate that damage. Further:

Second, 99% of the casualties linked to climate change occur in developing countries. Worst hit are the world's poorest groups. While climate change will increasingly affect wealthy countries, the brunt of the impact is being borne by the poor, whose plight simply receives less attention.

Entirely true of course, but this is hardly specific to climate change. It is always the world's poorest groups who are worst hit, the poor who bear the brunt of the impact. Because, well, does it really need to be said?, they are poor.

For that is the very meaning of the word poor, that people do not have excess resources, they don't have any margin between what they need to stay alive today and what they've got available to them today. So if disaster does strike then they are indeed going to carry  heavy cost: unlike us rich people who have spare resources in reserve.

Where I part company with this statement of the obvious is in what the distinguished panel of writers suggest we do next. We need to stop climate change so as to protect the poor. Me, I'm not so sure about that. I am rather convinced that it would be easier to stop people being poor so that they could, like us, deal with the necessary adaptations. However, allow me in my magnaminity to concede that I might be wrong on this. Perhaps reducing poverty will only help, not solve, this problem.

Very well, but it is, as we are told, a problem of such massiveness that every little bit helps, correct? And what do we know would reduce such poverty? A reduction in our own trade barriers would help would it not?

Excellent, so how about a small agreement here. I'll agree that this impact of climate change upon the poor really is a serious problem, one we should do anything to alleviate, when those telling me this start proposing that we abolish our trade barriers against those products made by poor people in poor countries.

Mob rules

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It seems that Mr Finklestein, over at The Times, has been unsettled by the current feelings of animosity being shown by everyone towards MPs. He claims that he can't join in with the heckling of MPs, and is unable to comprehend how we can be fomented into a baying mob by some common-or-garden theft. Especially when it's balanced up against all the so-called 'good' work our humble MPs do for us. Or compared to the suffering of those in Zimbabwe or Darfur.

Why are we angry? A natural reaction to seeing a wrong committed is the hope that  the transgressor is punished in some way; hopefully so that they do not undertake a similar action on another occasion. In the case of the MPs we, the taxpayers, have quite simply been stolen from, lied to and are sure that justice will be stopped from taking it's natural course. We are all feeling cheated and also impotent.

In any organization there is a desire to construct a collective identity that reflects the moral worth of the assembled individuals. In this case tarring all MPs with the same brush is fair. After all they wrote the rules by which they are now being judged, and they also had multiple opportunities to punish those who were abusing the expenses system. But alas they were all 'on the take' in one way or another, the organization itself was morally bankrupt, and it seems that it had an effective hold over any new entrants.

The taxpayers feelings have coalesced around the issue of the breech of the bond of trust that we hold with politicians. Trust  is something that we can and should always show in each other, unless, of course,  someone transgresses against us. In this instance we have all had our trust broken as the baying mob shows.

Dan Ikenson at the Adam Smith Institute

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Dan Ikenson of the Cato Institute was the featured guest speaker at 23 Great Smith Street this Thursday. The lunchtime seminar was co-hosted by the Adam Smith Institute and the International Policy Network. Mr. Ikenson drew from his study of global supply chains as he spoke about the blurring of national boundaries in the new global economy. International shipping and communication costs are at an all-time low, and trade, finance, and political barriers are decreasingly restrictive. Under these circumstances, production facilities are no longer confined by walls—factories, not just corporations, have gone multinational. President Obama’s call to “buy American" highlights the lack of clearly defined borders in international trade. What is an American product? Is it one sold by an American-owned company? Is it one produced in America? Is a product still American if some of its components are made in China? The automobile and steel industries are replete with American companies that produce their goods abroad and non-American companies that have manufacturing facilities in the US. Final goods now represent value-added for several countries, not just the nation ini which the producer is headquartered. As governments accept this new economic reality, they have begun to relax trade barriers, but trade policies still lag behind the changing marketplace. Policymakers insist on measuring success in terms of the performance of one nation’s producers relative to those of another. As a result, protectionism still abounds. Rather than working to improve access for their producers abroad or limit access for foreign producers at home, governments should strive to increase the number and size of high value-added industries within their respective nations. They can do this by improving infrastructure while scaling back regulatory and administrative barriers.

Dealing with fraud

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We should not copy France on most things, but when it comes to the way it deals with fraudulent polticians, we still have an awful lot to learn.

Blog Review 976

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This is simply shameless. The proof that the oceans are warming comes from data entered into models...the data being estimates coming from the same models.

An interesting video on the subject of global warming.

A new theory of everything: it's amazing how often such things end up detailing simply the pre-extant prejudices of the author.

On the man in the wardrobe fallacy.

You know that financial crisis caused by an absence of regulation? Well, looks like the regulators actually caused at least some of it.

No, no, say it isn't true?

And finally, when the readers bite back.

£ vs. €

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The pound seems finally to be struggling up from the floor, rising above $1.60 for the first time since November. It even maanged to rise to €1.15, and speculators are betting it will hit €1.25 by the middle of the summer – providing a welcome boon to the few British travellers who are venturing abroad this year. Time to raise a cheer?

Well, maybe. There are some encouraging statistics – the number of mortgage approvals rose last month, housing rents are strengthening, and some of the more optimistic experts say we're through the worst of this crisis. But most of the pound's consolidation is actually due to the fact that America is in just as big a fix as we are, with a comparable mountain of public debt and a beaten-up financial services sector. And the Eurozone is worse off than everyone thought. It didn't suffer the financial shock that we did because its finance industry is smaller and more conservative. But now that the Brits and Americans are putting off their European holidays and purchases of BMWs and washing machines, the Eurozone is suffering.

Still, the cheapness of British exports is beginning to have a visible effect on our balance of trade, far earlier than most economists thought. The belief was that the low value of the pound would only help us in a year or two, once the world was buying again. So that's lucky. And it's more than luck – it's good judgement, and you have to admit that it's Gordon Brown's good judgement – that we're not in the Eurozone. Then we would be unable to adjust in the wake of an economic shock like the one we've had. As the likes of Italy and Spain now realize.

Tube strikes

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I have written before about the failure of the Mayor of London to face up to the RMT Union. Now we are seeing the repercussions of that initial weakness with news that the RMT have voted to strike over pay, working conditions and some 3,000 jobs feared to be at risk.

Workers will begin a 48-hour strike at 1859 BST on 9 June. The response from TfL has been swift and non-conciliatory:

The RMT leadership has failed to engage in any meaningful talks on pay, instead submitting a wildly unrealistic claim - demanding a 5% pay rise for fewer hours in the middle of a recession. On jobs, the RMT leadership knows full well we are seeking to end the duplication of back office jobs and that no front line staff will be affected. Our offer guarantees real wage increases for the next five years. Very few Londoners have that level of certainty for the future.

The battle lines are drawn. If the RMT does not back down, nor should the Mayor. One thing is for sure: Londoners would be near-unanimous in their support for confrontation.

In truth, the fight will not be won until the London Underground is privatized. This is certainly easier said than done; it is the case for most industries that once they have been touched by the inefficiencies of government, putting them back on the straight and narrow is a long and often painful road. Nevertheless it is the only way out of the mess we are in and it should not stop Boris doing the right thing. Let it not forgotten that before his makeover, he was a disciple of Thatcherism. If he could just follow his intellectual instincts as opposed to his political ones, there is no reason why he could not be the person to revolutionize London’s ailing underground system.