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The flat rate consumption tax would have the least distortive effect per dollar of revenue raised. The problem with something like that is that it leads to making government look less costly and so the historical experience, particularly in Europe, is that the absolute size of government is very much a function of what their flat rate is and I think if we move toward a flat rate consumption tax (VAT) that we would need to have an independent process to approve an increase in the size of government that requires a larger approval, maybe two thirds of the vote in Congress or approval by number of states. Given the nature of our current tax system in the United States, cutting tax rates increases the amount of money that people want to spend (and the relative size of government) because it reduces the visible taxes on the current generation of voters.
Cato Institute Chairman Emeritus and Senior Economist, William Niskanen
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