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Why France has VAT and America Doesn't

(Crossposted from Crooked Timber)

Bruce Bartlett is advocating the introduction of Value Added Tax to America. This is a perennial proposal on the right, but it doesn’t appear to ever gain much political traction. The obvious reason why is that VAT is unpopular because it’s a regressive tax (the more people earn, the less they pay). However, this doesn’t explain why European countries which one would expect to be more attracted to progressive taxation systems have VAT, often at quite high levels.

Former CT guest blogger (and current GWU colleague and friend of mine) Kimberly Morgan has written a nice historical paper (Word file here )with Monica Prasad looking at how the US came “to have a tax code that is on many levels more hostile to capital accumulation than its peers” while France “which in some opinions has “never really been won over to capitalism” ” found itself relying on taxes that hit workers and consumers unusually hard. Simplifying drastically, she and Prasad argue that it can be explained by timing. Industrial capitalism arrived in the US before a real national state came into being, while the state preceded capitalism in France. The weak state in the US, and the willingness of business to ride roughshod over consumers, “led to an intense public interest in disciplining capital, which underpinned a movement toward income taxation that would punish capital and the wealthy.” In France, in contrast, well-founded fears of state intrusion led French citizens to fear direct taxation, and tax advocates to work against “fiscal inquisition” and the further expansion of the state into private life. This left French left-wingers ambivalent about the virtues of income taxes, so that a state crippled by war expenses had to turn to a sales tax to raise money. If this is right (and they provide a lot of historical evidence), some of the verities of left and right about France and the US should be turned on their head (this is one of the reasons why it’s a fun paper, for values of fun that include ‘detailed historical institutionalist arguments about causation.’)

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