In 1986, we got as close to a flat tax as we ever will, when the top rate was reduced to 28 percent in return for eliminating many deductions and preferences from the tax code. But just four years later, the first President Bush double-crossed taxpayers by raising the top rate to 31 percent without restoring the lost deductions. This paved the way for Bill Clinton to further raise the top rate to 39.6 percent. This betrayal has, I believe, doomed fundamental tax reform for the foreseeable future.
I now believe that the best we can hope to do is make incremental improvements to the existing tax system and hopefully prevent it from getting worse. Unfortunately, because the current President Bush and a Republican Congress have allowed spending to get totally out of control, I believe that higher taxes are inevitable. In particular, their enactment of a massive new Medicare drug benefit absolutely guarantees that taxes will be sharply raised in the future even if Social Security is successfully reformed.
Too many conservatives delude themselves that all we have to do is cut foreign aid and pork barrel spending, and the budget will be balanced. But unless they are willing to seriously confront Medicare, they cannot do more than nibble around the edges. With Republicans having recently added massively to that problem and a Republican president who won't veto anything, I have concluded that meaningfully controlling spending is hopeless.
Therefore, we must face the reality that taxes are going to rise a lot in coming years. I believe that a VAT is the least bad way of getting the hundreds of billions of dollars per year that will be needed. The alternative is higher tax rates that will be far more debilitating to economic growth.
If we end up with a VAT, the fault will not be mine. The blame will lie with those Republicans who created an extraordinarily expensive new entitlement program just to buy a few lousy votes. It is they who will bear ultimate responsibility when financial markets demand that deficit reduction is once again the order of the day and tax increases become mandatory.
Bruce Bartlett is a former senior fellow with the National Center for Policy Analysis of Dallas, Texas. Bartlett is a prolific author, having published over 900 articles in national publications, and prominent magazines and published four books, including Reaganomics: Supply-Side Economics in Action.
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