Cato Institute scholar wants a national sales tax, $10k check for all

So much for being a libertarian think-tank…

A Cato Institute scholar is – get this – promoting a value-added tax (VAT) and a $10,000 check for Americans.

Writing in The Wall Street Journal on Monday, John Cochrane, a senior fellow at Stanford University’s Hoover Institution and an adjunct scholar at the Cato Institute, is proposing instituting a value-added tax, otherwise known as a national sales tax, as part of President Donald Trump’s tax reform initiative.

Here is what he wrote when talking about garnering support for tax reform:

“The best way to do this is to eliminate entirely the personal and corporate income tax, estate tax and all other federal taxes, and to implement instead a national value-added tax—essentially a national sales tax,” he said.

Cochrane believes the VAT should be about 20 percent.

On top of a VAT, he wants everyone to receive a $10,000 check instead of exemptions.

“What about progressivity? It is easy to make a value-added tax progressive: In place of current exemptions, send everyone a $10,000 check,” he wrote.

A general consumption tax is a terrible idea. Like Murray Rothbard wrote, any sales tax is essentially odious since it is a tax on living:

The most common criticism is that the VAT, like the sales tax, is a “regressive” tax, falling largely on the poor and the middle class, who pay a greater percentage of their income than the rich. This is a proper and important criticism, especially coming at a time when the middle class is already suffering from an excruciating tax burden.

In the first place, the VAT advocates claim that since each firm and stage of production will pay in proportion to its “value added” to production, there will be no misallocation effects along the way.

But this ignores the fact that every business firm will be burdened by the cost of innumerable record keeping and collection for the government. The result will be an inexorable push of the business system toward “vertical mergers” and the reduction of competition.

Hence, vertical mergers will be induced by the VAT, after which the Antitrust Division of the Department of Justice would begin to clamor that the free market is producing “monopoly” and that the merger must be broken by government fiat.

The costs of record keeping and payment pose another grave problem for the market economy. Obviously, small firms are less able to bear these costs than big ones, and so the VAT will be a powerful burden on small business, and hamper it gravely in the competitive struggle. It is no wonder that some big businesses look with favor on the VAT!

What Cochrane should be proposing is to slash spending significantly similar to what former Congressman Ron Paul did in 2012 when he suggested cutting the budget by $1 trillion.

As Tom Woods would say, Cochrane is one of those Cato Institute representatives who abide by the 3×5 card of allowable opinion and who refrain from proposing anything controversial.