Hold the VAT — taxpayers may prefer spending cuts
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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