PRESENTATION BY THE COFEK TO THE PARLIAMENTARY COMMITTEE ON FINANCE, TRADE AND PLANNING HELD ON TUESDAY, JULY 16, 2013 AT CONTINENTAL HOUSE, NAIROBI
Mencken (1880–1956), one of America's great wits, would chuckle. Almost every pro-VAT argument is exaggerated, misleading, incomplete, or wrong. The VAT is being merchandised as an almost painless way to avoid deep spending cuts. The implicit, though often unstated, message is that a VAT could raise so much money that it could eliminate future deficits by itself. This reasoning, if embraced, would result in staggering tax burdens and exempt us from a debate that we desperately need.
Higher consumer prices from the VAT could also slow the economy. A VAT is no panacea; deficit reduction can't be painless. We'll need both spending cuts and tax increases. A VAT might be the least bad tax, though my preference is for energy taxes. But what's wrong with the simplistic VAT advocacy is that it deemphasizes spending cuts. The consequences would be unnecessarily high taxes that would weaken the economy and discriminate against the young. It would become harder for families to raise children. VAT enthusiasts need to answer two questions: What government spending would you cut first? And how high would your VAT rates go?
Robert Samuelson is also the author of The Great Inflation and Its Aftermath: The Past and Future of American Affluence and Untruth: Why the Conventional Wisdom Is (Almost Always) Wrong.
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