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An Interview With Bruce Bartlett

bartlett_200.jpgBruce Bartlett's conservative credentials are impeccable: He's worked for Ronald Reagan and George H.W. Bush, Jude Wanniski and Gary Bauer, Ron Paul and Jack Kemp. But he's also an economic realist: Government spending is growing, he says, and taxes are going to have to grow with it. The question for his party is whether it wants to get to work crafting those tax increases in a responsible way, or whether it wants to let Democrats levy inefficient hits on the rich and strange changes to the tax code. The health-care debate is a perfect example: A VAT could pay for this efficiently. But without Republican support, a surtax on the rich is likely to pay for this inefficiently. We spoke yesterday.

Start at the beginning. Why do we even need taxes? Why pay for anything?

We have a stream of revenue we'll continue to get in the future from the policies in place. But spending is projected to rise much more rapidly. So the question becomes what is the politically and economically tolerable level of the deficit? The Republican position seems to be, as Dick Cheney once said, that "deficits don't matter."

I don't know when we reach that threshold. But I think we were getting close even before the current problems. And federal spending is supposed to rise by about 50 percent over the next 25 years or so, and that was before any of the recent events. I think long before we'd reach the year 2030 we'd have a deficit large enough to create massive economic and political problems. Since the deficit has gotten so much larger so much faster, we're starting to see those problems on the horizon: Weakness of the dollar, increased efforts of foreign countries to diversify, unwillingness of other countries to hold the dollar. Eventually, we'll have a lot more trouble selling our bonds because our foreigners won't want them any longer.

What do you think a compromise between sensible members of both parties would look like?

I think the administration made a mistake approaching the funding of health-care reform how it did and I think Republicans made a mistake refusing to seriously debate the issue or its funding.

The value-added tax would be a very appropriate tax to use for this purpose. One reason is I am disturbed that we have a large percentage of the population that pay no income taxes. And I know many of those people pay payroll taxes. But income taxes fund the general government. According to a study by the Tax Policy Center, 47 percent pay no income tax, or have negative liability. And I think it's bad for democracy when people get into the position when a majority can vote benefits for themselves but not pay for it. And that should disturb liberals as much as conservatives.

The VAT would necessarily be a broad-based tax. It would be a way of getting people to pay for the benefits they themselves receive. People like Len Burman and Rahm Emmanuel's brother [Ezekiel Emmanuel, a health care adviser to Peter Orszag] have supported this for some time. Len argues that if people knew the VAT was dedicated to health-care reform, and the rate rose and fell automatically with the spending of the system, they would have an incentive to hold down taxes. They would have some positive reinforcement we do not now have with Medicare. I hope that's right. You know, every other major developed country has a VAT: The parties of the left in Europe made a deal a long time ago: If conservatives will let us have a welfare state, we'll fund it conservatively. And I think that's still a good deal.

So why aren't we seeing anything like that?

I think there's a couple of reasons for that. Both sides are pathologically afraid of advocating any kind of tax that would be paid by the average person. Republicans are opposed in particular to the VAT precisely because it's such a good tax. They fear it would become a money machine and it would help the government grow. I agreed with that for a long time. But the problem now is that we need a money machine! We have all this spending in the pipeline. It's not a question of whether we'll create new programs. It's whether we'll fund the ones that are already there.

What about a financial transactions tax?

I think that's pretty well dead. I don't support that myself. I think it's too easy for trading to shift to London or Tokyo or some other such place. It is interesting though that it hasn't come up. It could have something to do with the fact that guys like Chuck Schumer and Chris Dodd are in leadership positions and they're going to protect Wall Street.

Are there any other options you think particularly interesting?

One reason I've been more sympathetic to a carbon tax than other conservatives is that if you did it right it would be pretty close to a VAT. One of the objections a lot of us have to cap-and-trade is that it's too easily manipulated. It sounds good in theory, but once in the political meat-grinder, its failures become overwhelming.

Also, the corporate tax is no longer a viable source of revenue because of international capital flows and international trade. It's hard to pinpoint the source of a company's revenue. And this means we really need to shift more toward consumption-based taxation. You know where people consume. I think that's important.

And thinking about this from another perspective, suppose we had a VAT right now and we wanted to stimulated consumption. Reducing the VAT rate temporarily would be a wonderful way to stimulate consumption. Suppose you had a 10 percent VAT and we said we weren't going to collect it for the next 10 months. People would buy like crazy. They'd buy toilet paper, they'd buy anything they could get their hands on that they knew they'd need in the future. We're depriving ourselves of a great stimulant tool by ignoring this.

This gets back to the areas where there's no debate and there should be. I'd like to see some overall tax reform that lets us raise revenue at a lower deadweight cost to GDP. If you just did a tax reform that reduced that deadweight you could reduce the burden even as you kept the revenue. I'd love to see ways to do that discussed.

By Ezra Klein  |  July 17, 2009; 7:40 AM ET
 
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Comments

So, as an economist the guy believes we should pay for what we're doing. How convenient for you, who obviously wants to raise taxes. But let's not mistake this sense of responsibility for an endorsement of the current spending insanity. Though I'm sure you will.

Posted by: whoisjohngaltcom | July 17, 2009 9:04 AM | Report abuse

That was a good interview, thanks Ezra. I don't know that I've ever heard of this guy, but the name sounds familiar. It's clear he's been around for a long time. He's probably one of the first intellectually honest conservatives I've seen in a while, it's actually quite refreshing. He didn't say a whole lot that I didn't agree with.

Hint to the GOP: If you were more like this guy, and less like Sarah Palin, more Moderates like myself would vote for you.

Posted by: VTDuffman | July 17, 2009 9:16 AM | Report abuse

Ronald Reagan proved deficits don't matter. Didn't he get the memo?

Posted by: pj_camp | July 17, 2009 11:20 AM | Report abuse

Goodness. I haven't seen so many misrepresentations piled into such a short interview in a while. Let's hear it for regressive taxes.

Posted by: paul314 | July 17, 2009 11:37 AM | Report abuse

Ezra, your prelude says "The health-care debate is a perfect example: A VAT could pay for this efficiently. But without Republican support, a surtax on the rich is likely to pay for this inefficiently."

What's efficient about the VAT and what's inefficient about taxing the rich? Among other things, I'm convinced that massive income/wealth inequality are in and of themselves inefficient, so more progressive taxation seems to me to come with efficiency enhancing benefits.

That said, I've got a soft spot for consumption taxes as well. I think the world is going to die on us if we don't reorient our economic structure away from consumption for the sake of consumption. Yes, I know plenty of consumption is not frivolous, but plenty is.

Posted by: JonathanTE | July 17, 2009 12:05 PM | Report abuse

Great discussion on an ignored topic. Progressives dislike the VAT because of its regressive nature, although the usual alternative of raising corporate taxes has the same net effect of increasing the cost of goods. Conservatives politicians have become ideologically boxed in by the (far too successful) campaign to demonize -all- taxes to be able to promote a new one, but they know their constituents would boot them out of office if they imposed the necessary service cuts to reign in government spending.

I’m intrigued by Mr. Bartlett’s comment on the European’s compromise to fund a welfare state through a conservative tax, it sounds like the exact kind of bipartisan opportunity we need to rally the country around solutions instead of finger pointing. I’m an eternal optimist; I still (unless I’ve been watching CSPAN) imagine Congress having substantive debates on the pros and cons of important policies.

I have reservations about how effective it would be in controlling costs –if people consistently acted, let alone voted, in their own economic self interest, we wouldn’t be living in a society where more than 80% of the wealth is held by 10% of the population. However, a VAT is the kind of blunt financial tool that is harder to manipulate to a special interest group’s sole advantage than the 17,000 page tax code. And there are ways to apply it that take off the worst of the regressive components –exempting food, medicine, or even the first $50 of clothing items.

Thanks to both of you for a thought provoking piece. I appreciate the chutzpah it takes to offend the left and the right at the same time.

Posted by: CanadaTed | July 17, 2009 12:35 PM | Report abuse

Not addressed: The VAT is a regressive tax.

I would be interested in hearing how he addresses the inequity. We did very well under the belief that those who can contribute more, do so. We have not done so well with "I've got mine, tough for you."

As usual, a conservative did not address how a proposal is good for the middle class. They never do!

Posted by: PoliticalPragmatist | July 17, 2009 1:23 PM | Report abuse

Like the sales tax it sounds like an irritating nuisance both for the person buying the goods and for all the people in the the chain of production of the product. What's wrong with just raising the income tax?

Posted by: ligedog | July 17, 2009 1:59 PM | Report abuse

From an efficiency perspective, an income tax discourages work effort and savings; a consumption tax does not. Consumption taxes are border-adjustable (imports taxed and exports untaxed), whereas income taxes are not (they are embedded in prices). High tax rates in general encourage tax evasion. A VAT to fund health reform could have a low rate, and the VAT structure helps to limit evasion.

A VAT can be progressive if it funds programs which primarily benefit the poor and middle class (such as health reform). If low and middle income households pay 70% of the tax and receive 95% of the benefits, then the combined program is by definition progressive.

Posted by: justin84 | July 17, 2009 4:07 PM | Report abuse

" If low and middle income households pay 70% of the tax and receive 95% of the benefits, then the combined program is by definition progressive."

Thank you. Enlightening. Now, can we trust the politicians who have raised the wealth of the top 1% from 9% to 21% since 1978 and destroyed the middle class and the economy in the process?

There's the real question. They have raised a lot of taxes on the middle class. First, adjust income tax rates to return to fairness, then we'll be more interested in how the middle class can pay more.

Posted by: PoliticalPragmatist | July 17, 2009 4:23 PM | Report abuse

@VTDuffman

Bruce Bartlett is an interesting person. He worked for Jack Kemp and then in the Reagan and H.W. Bush administrations. You may have heard of him back in 2005 when the conservative think tank he was working for fired him after they found out he was writing a book called "Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy."

Posted by: Bill91 | July 17, 2009 4:50 PM | Report abuse

We could have had a Sales Tax Holiday that would have helped the states, and been an incentive for spending now.

Posted by: DonthelibertarianDemocrat | July 17, 2009 6:08 PM | Report abuse

This would be a return to the failed policies of the preReagan GOP. The democrats make new programs and the republicans raise the taxes to pay for them. Each election then pits Santa Claus against Irwin R Shyster. This is a recipe for permanent minority status and the end of American exceptionalism. Anyone republican who embraces this idea without corresponding cuts in income taxes should be run out of the party.

Posted by: sourcreamus | July 17, 2009 9:06 PM | Report abuse

Taxes are like digital music - there's a certain amount people will pay, and if the price goes higher, you get piracy.

We are already at the point of piracy with taxes. Raise them, and you will just get more evasion. And I don't care if its a VAT or income taxes or what.

Posted by: punditius | July 17, 2009 11:30 PM | Report abuse

This guy is quite persuasive. Why don't we have more politicians like this. I particularly like the idea of another degree of freedom to control the economy( after the federal discount rate).

Posted by: zosima | July 18, 2009 3:05 AM | Report abuse

I think Bartlett's point about the majority being able to vote themselves benefits under the current system without paying for them is an important one. A VAT would allow us to capture significant revenue from the large, and probably growing, underground economy which income and payroll taxes can't reach.

Posted by: BarryC | July 18, 2009 6:55 AM | Report abuse

Bruce Bartlett is unusually transparent for a Republican but he is fixated on the idea that everyone should contribute to "general government" expenditures. Payroll taxes count as taxes too and we need to disenthral ourselves from the notion of entitlement "trust funds." Government is government and taxes are taxes. If we follow his advice we'll end up with a system that is more regressive than at any time in the last century.

He's right that we should tax consumption and should not corporate profits but the best way to do this is not with a VAT but with a progressive consumption tax (PCT). A PCT would be collected once a year like an income tax and like an income tax there would be federal withholding. Consumption would simply be calculated by subtracting savings (and debt payments) from income (including capital gains, interest, dividends and inheritances). Consumption could be taxed very progressively and there would be no disincentives to save or work because you're not taxing income or savings.

But I'm increasingly thinking that Mr. Bartlett is less concerned with minimizing deadweight losses and more concerned with maintaining and increasing income inequality. A VAT on top of a payroll tax would burden working Americans excessively. The tax burden needs to be shifted to those who are consuming conspicuously, and the PCT is the way to do it.

Posted by: msadowski01 | July 18, 2009 10:58 AM | Report abuse

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