Hold the VAT — taxpayers may prefer spending cuts

Hold the VAT — taxpayers may prefer spending cuts

The Obama Democrats’ stealth strategy for increasing the size and scope of the federal government is well under way, despite huge voter backlash. Federal spending has been increased from a 30-year average of 21 percent of gross domestic product to 25 percent, and a bipartisan commission tasked with reducing the deficit may recommend tax increases. Presidential economic adviser Paul Volcker has already called for a value added tax, a form of national sales tax, and presidential press secretary Robert Gibbs has declined to rule it out.

The assumption in some quarters is that a tax increase is inevitable and that the public won’t allow any significant decrease in public spending. But there’s reason to question that assumption.

Spending cuts have proved politically sustainable in other advanced countries. Economist Tyler Cowen, writing in the New York Times, notes that in the last two decades Canada, Sweden and Finland all cut government spending 20 percent within a few years when faced with structural budget deficits. It may have been painful, but no one saw starving people in the streets of Ottawa, Stockholm or Helsinki.

We may also be seeing some examples in American states. The focus in Washington has been on the federal budget deficit, but state and local government spending amounts to more than 10 percent of GDP and grew faster than the economy over the last decade…

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