Health care reform is capable of whittling out some inefficiencies and could, in the long run, save money in a lot of places. (The degree to which that’s true has been the source of a lot of argument, of course.) I am ready to concede that true universal coverage, which I believe is a necessity, is going to be expensive. John McCain and others have suggested a value added tax as one way to address these costs. (Usually support for a VAT comes along with equal tax cuts in other areas, but I’m not one for running in place.)
I think that I support the VAT. It’s a deeply complicated tax, and there are a lot of smart people who have strong arguments pro and con. But you’ve got to pay for new programs, and while I think that we have become overly pessimistic about the ability to reduce costs through the elimination of our current mess of a health care system, I’m also aware that at least in the short term new revenues are going to have to be raised. So I’m in support of a VAT to help defray the costs of providing millions more people with access to health care. There are caveats, though. Whether the VAT is inherently a regressive tax is controversial. Nobody seems to deny that it can be regressive if not implemented properly, so my support for the VAT (and yes, there’s some “and a pony” here) is contingent on it being enacted carefully, so as not to punish those at the bottom.
And that’s generally the difficulty with a VAT: it’s just a very complicated tax scheme to enact. It requires a really large infrastructure to ensure that people are paying their fair share. (You can ask France about it.) That means expanding the IRS or creating an entire new agency for enforcing a VAT, neither of which are exactly what you’d call popular proposals. That’s generally the problem; it’s close to a political impossibility to both raise an entirely new tax on the American people and to create the kind of bureacracy that’s necessary for it to work.
I’m not a big fan of “only Nixon could go to China” statements; too often are used to allow both left and right to shirk some of their ideological responsibilities. Certainly, Republicans aren’t in any position electorally to pass this kind of proposal. I think such a thing would need to be truly bipartisan to have any hope at all.
Who wants to bet money whether we could actually see such a thing? I’m, uh, pessimistic.
Wouldn’t a VAT be potentially devastating to an economy in recession? I mean, demand is already dramatically suppressed by stagnant wages and concerns about future employment. A VAT would essentially raise the cost of all manufacturing and services across the board, directly and immediately resulting in decreased consumer demand and increased unemployment even before we account for the construction of a huge new system of regulations and inspections to monitor and enforce the new tax.
I can’t see how anyone with even a basic knowledge of economics could advocate implementation of a VAT under current or near-term foreseeable conditions.Report
That’s a fair point Jason!Report
I guess the real problem with a VAT seems to me is that it functions as an across-the-board disincentive towards ALL economic activity, especially if the proceeds are spent on building an intrusive government bureaucracy that will then only add MORE disincentives in the form of new inspection and reporting requirements.
It also undermines the U.S. competitive position vis-a-vis other countries that do not have a surcharge appended to all of their products.Report