VAT

Tyler Cowen posts on the VAT.  Greg Mankiw posts on the VAT.  Arnold Kling disagrees.

Kling is basically right, Cowen and Mankiw are wrong.

There are several issues in play. 

1.  Expansion of government powers is BAD.  To create a VAT adds an entirely new level of marginal increases that the government can use to take money.  This increases their power.  Furthermore, the collection of the VAT requires a whole new layer of bureaucracy.  From this standpoint, the only trade for the VAT is the income tax.  Trade one for the other...not both.

2.  The VAT increases centralization, and preferences subsidiaries over independent entrepreneurs.  The primary game at play for libertarian-leaners and pro-growth-ers is how to incent non-governmental organizations and especially entrepreneurs.  VAT is horrible for that, as it increases transaction costs outside organizations but not within organizations.  Also, as per previous work, I think entrepreneurialism is good for the soul, and that corporate work is ethically corrupting.  From this standpoint, it could only apply to consumer-direct transactions. 

3.  The VAT massively increases dissatisfaction with government.  When it's a sales tax, you can tell if the government is stealing your $.  When it's an income tax, it only comes up when you get a new job, and send your IRS forms.  Also, VAT taxes in Europe are avoided on a massive scale.  Increases civil disobedience substantially, and trust / value in government.  This is a good thing.