Canada leads the way

25 03 2009

We love to hate it but you can’t knock success.  A reader of Daily Dish writes about the elephant in the Oval Office:

On revenue, you know the answer as well as I do. Obama needs to move to a VAT/Consumption tax. These things pee money and it was key to Canada turning away from the debt wall it was about to smack into in the mid 90’s. Needs to be sold along with an income tax reduction. Congress will be skittish but it is the right answer.

Bad news for Britain though.

Now on to wrong answers, Gordon Brown. I see the Brit Treasury couldn’t sell all the debt it needed to today … gulp. Gordon Brown, along with Tony Blair, has shown what the ultimate result of Tax AND Spend does. For all its faults, having a lot of debt, the US still maintains an enormous tax capacity. The UK does not and now when they might need to spend the UK government is coming close to a line where it cannot. So while a VAT shoots out money like a firehose in good times it means those surpluses need to be used to pay down the debt incurred in bad times. Do Americans have the discipline the UK under New Labour failed to show?

Both Liberals and Conservatives have made efforts to use the good times to pay down debt.  Although folks were often outraged by the massive surpluses the federal government would regularly run, the difference was always paid down on debt – something that would have been harder to achieve if they had tried to do it via Budget.  Underestimating revenues was a way to ensure debt repayment, and it worked.  The U.K. instead spent the difference.

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