The Corner

Doug Elmendorf’s Brain in a VAT (Cont’d)

Daniel, Mr. Elmensdorf could do worse than talk to Roger Douglas, the 1980s New Zealand finance minister whose dramatically successful reforms included (as a reader pointed out to me recently) the introduction of a goods and services tax (a tax somewhat analagous to a VAT) and, not so incidentally, a dramatic reduction in marginal tax rates.

The situation in the United States today is, of course, very different from that which prevailed in the land of the Kiwi thirty years ago, and the Douglas story is more complicated than mythmakers sometimes suggest; nevertheless, there is a lot to be learned from it, not least by those on the right who believe that there is something wrong with a VAT/GST in principle. There isn’t.

For some of the background to “Rogernomics”, here is a Heritage report from 1995. Given the mess in which the U.S. now finds itself, this extract makes particularly poignant reading:

For two years running, the government has balanced its budget. In 1984 the deficit was 9 percent of GDP. This year we expect the surplus will be over 4 percent of GDP (NZ$2.6 billion), rising to 7.5 percent by 1997. Public debt as a share of GDP was nearly 52 percent of GDP at 30 June 1992, is currently 38 percent, and is projected to be down to 18 percent by 1998. Net foreign currency debt will be totally paid off by 30 June 1997.

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