Gov. Mitch Daniels Floats Sweeping Tax Reform: VAT plus Flat Income Tax, 10/14/10

Indiana Gov. Mitch Daniels, endorsed sweeping tax reform on the occasion of accepting the Hudson Institute’s Herman Kahn Award. Gov. Daniels selected a quote from Kahn’s 1982 book, “The Coming Boom”: “It would be most useful to redesign the tax system to discourage consumption and encourage savings and investment. One obvious possibility is a value added tax and flat income tax, with the only exception being a lower standard deduction.”

Gov. Daniels, who once headed the Hudson Institute, a conservative think tank, and served as Director of the OMB under President George W. Bush added: “That might suit our current situation pretty well. It also might fit Bill Simon’s line in the late ‘70s that the nation should have a tax system that looks like someone designed it on purpose.”

The above quote can be found in the video from 17:15 to 19:30.

Rosanne Altshuler, Director, Tax Policy Center, “U.S. deficit and potential revenue-generating solutions,” Wall Street Journal,, 05/04/10

“We can’t think that we’re going to raise the revenues we need just on the backs of the rich….So, we’re going to have to consider fundamental tax reform.  An, we may actually have to consider alternative revenue sources.

Virtually every developed country has a VAT.  The revenues that are raised with a value added tax, for instance, can he used for paying down the deficit, can be used for reducing payroll taxes, could be used to reduce individual income tax rates.

In terms of the corporate tax, I think we have  a real problem.  We have the second highest statutory rate in the developed world.  The rest of the OECD countries - the rest of developing countries - have been lowering their corporate tax rates.  We’re in a world, now, where capital is very mobile.  It an move from one country to the other very easily.  So, we need to raise more revenue, but we always have to worry when you raise tax rates, you discourage economic activity.

In terms of tax reform, what you want is a simpler tax system, a fairer tax system, and a more efficient tax system.  You want a tax system that people have faith in.”

President Bill Clinton, “Federal Budget and the National Debt,” interview with Bob Schieffer, Peterson Institute for International Economics, C-Span Video Library, 04/28/10

President Clinton: ”(T)he Europeans have used it quite successfully.  I think if you did it you’ld have to readjust the whole - the rest of the tax system to keep it progressive.  It’s also somewhat complex because it’s on every stage of the production process.  But, the one thing that blue collar America should like about it is it’s good for exports and it in effect, it doesn’t allow quite so much subsidy of imports - when other countries subsidize their production for export at least they get slapped with a value added tax when it comes in here.  And, it’s good for exports.  So, if you’re not willing to give up on manufacturing and I’m not, I think it’s a great time to,  for us to, rebuild a manufacturing sector in America.  If we had the right sort of value added tax and we made enough adjustments in the other tax bills to make it - to keep the progressivity of our tax system, it could be really good.

Now the real problem with the value added tax is the problem why we couldn’t pass the single-payer health system, right?  A lot of things that are good in theory require so much change that people just can’t make the mental leap.  So, I’m not at all sure, that the Simpson-Bowles Commission will wind up recommending it.  I know ‘em well enough to know that they’ld have to have a theory in their mind about how it could actually pass before they would recommend it.

It’s a big leap, but if you look at it, people in Europe - just like any other sales tax - they just get used to payin’ it, and it would be good for exports and it would, our home market products would, be on more even footing with imports if we had one.  And, we compete in countries that have ‘em all the time.  So we get it comin’ and goin’ because we have it and they don’t,” 58:14-1:00:30

Erskine Bowles, Bipartisan Deficit Commission, “Balancing the Budget,” Andrea Mitchell Reports,, 04/27/10

Erskine Bowles: “I don’t think anybody’s gonna look at a value added tax without taking into account the income taxes.  You know there’s a lot of good arguments for a consumption tax as opposed to taxing wages or savings.  But, we can’t take startin’ this thing by takin’ things off the table.  We’ve gotta put things on the table and then we’ve gotta find some common ground that we can bring this budget back into balance.  We’re gonna have trillion dollar deficits as far as the eye can see if we don’t, and this country’s gonna become a second rate power, you know, just by not takin’ the tough stands.”

Eric Toder, Urban Institute, “Can Washington Embrace the Value-Added Tax,” NPR, 04/24/10

“Increasing the personal income tax very much is not a very good idea, and so that you’re left with a VAT which could be used partly to buy down income tax rates, partly to buy down corporate rates and partly to buy down the deficit. But that’s not to say the political system is ready for that.”

Fareed Zakaria, “America’s future faces a lot of doom and gloom, but perhaps its largest problem, the budget deficit, has a solution (VAT),” Fareed Zakaria, GPS,” 02/28/10

“…We have big problems, but the biggest one by far is the growing national debt.  It’s worth reminding ourselves that this is not a fact of life that we simply have to accept.  There are many simple economic measures that would correct the budgetary mess easily.  Let me give you just one - a value added tax.”

Al Hunt, “Bowles, Simpson Discuss Federal Deficit Commission,” Bloomberg, 02/18/10

Erskine Bowles: “I think a value added tax - I’ve looked at lots of them - ought to be something that’s on the table.  Again, I think you’ve got to look at all solutions.”

Alan Simpson: “Flat tax, I’ve heard that talked about - I never thought that would work very well.  Value added, anything.  Tweaking, raising the social security age - I mean the thing was set up when the average age was 57; that’s why they started at average age 65; now the average lifespan is 80/83.  Can’t work.”

Jeffrey Sachs, “Choices for America’s Economic Future,” lecture, Columbia University, 11/16/09

Sachs Student Lecture - Choices for America’s Economic Future from Earth Institute on Vimeo.

“…The things that President Obama wants to do: better education, sustainable energy, new transport, improved infrastructure, green recovery, improved international relations, development assistance for hungry people - all of that costs money…”

“…Basically we need new taxes.  And, the difference essentially that I would recommend is introducing a Value Added Tax…something like a 12% VAT rate…”

David W. Walker, “The Fiscal Wake-Up Tour Online,” The Peter G. Peterson Foundation, 09/16/09

(VATinfo Note: Walker does not mention VAT in this concise overview, but does favor a VAT; see quote in “Books” section.)

“We can and we must reform our tax system to make it simpler, fairer, more competitive, more administrable and also to generate adequate revenues to pay our current bills and to deliver on the promises we intend to keep.

And, yes, we can engage in a fundamental review and re-baselining of all major tax programs and tax preferences to understand which ones work, which ones don’t, which ones are focused on the future and which ones perpetuate the past.”