Brains in a VAT

Kevin Drum says a Value Added Tax would be a good way to pay for a universal health care plan. I'll add my voice to that suggestion. A universal health care program would be a highly progressive measure, so progressivity would continue to exist even given a somewhat regressive finance structure. What's more, Kevin's right that "pay or play" finance scheme make for terrible interest-group politics since the costs wind up falling heavily on certain classes of small businesses who, unfortunately, but understandably and with some justice, then wind up furiously opposing them.

All-in-all, I think this is an area where progressive politicians are going to need to figure out a way to get over their taxophobia. The sort of things liberals want to see happen require money, and that's a real political problem. Trying to get around the need to raise this money through taxes — using various kinds of regulatory mandates and "fees" — may work pretty well when you're only talking about a small amount of money, but when big bucks come into play it's probably worth coming up with something straightforward, efficient, and comprehensible and just having the fight.

Comments

"The sort of things liberals want to see happen require money, and that's a real political problem."

I can see why you'd like the VAT, then; For exactly the reason a lot of people oppose it: It's a stealth tax. If you can conceal from people exactly how much they're paying for government, they'll gladly buy more of it, and you want them to buy more of it.

Personally, I think we'd be better off if people were clear on exactly how much the services they were asking for really cost.

Posted by Brett Bellmore | November 2, 2007 9:05 AM

We shouldn't (couldn't?) come up with a plan that costs more than the current system, so it seems to me that the only issue is in communicating to people that although they will now pay for healthcare through taxes, they (and their employers) won't be paying (private) health insurance premiums anymore.

Long gone are the days when people were insulated from the cost of private health insurance, so it doesn't seem like it should be that hard a sell (assuming competent communications capabilities).

Posted by Doh | November 2, 2007 9:30 AM

One of the reasons conservatives are all about means-testing every possible government benefit is that they know people are more accepting of progressive taxes than they are of progressive benefits. Maybe a VAT is necessary, but any movement at all away from progressive taxation seems like an unforced error on our part.

Posted by Consumatopia | November 2, 2007 9:36 AM

VAT is incredibly corrosive of open and honest government - exactly the opposite of what we need in order to convince the US public to support universal health care.

As was noted in the best blog post entry: good ideas don't need to be sold with lies and stealth. VAT is lies and stealth encapsulated, and only policy analysts who have never actually been involved in running a business in Europe think it is a good idea.

Cranky

Posted by Cranky Observer | November 2, 2007 9:51 AM

i have to say i find it really odd framing to say that 'pay or play' schemes are bad for small businesses.

if you take as a given that some broad-based financing of universal coverage has to happen, lots of pay-or-play schemes are actually awfully kind to small businesses, since they cap their health care liability, and, cap it at a generally pretty low level compared to what they would pay on the open market.

also, if the 'pay' part is a payroll tax, which is usually the case, then business is hardly affected at all if the cost of the payroll tax comes predominantly out of other compensation costs (wages, mostly).

there are firms who can't pass on the payroll tax because they're already paying the minimum wage and no benefits, but, it strikes me as not unfair at all to make them pony up a bit for universal coverage, especially given how small the contribution of these firms would be.

Posted by josh bivens | November 2, 2007 10:10 AM

I think you are living in dreamland if you think it's politially possible to create a VAT in the US. Adding a whole new type of tax is much harder than tweaking current taxes.

Posted by Dave | November 2, 2007 10:26 AM

How about we claw back the Bush tax cuts for the rich, so we're back to them paying their fair share of the taxes for the country they mostly own and run?

Then we can talk about other taxes.

Posted by lambert strether | November 2, 2007 11:09 AM

Adding a VAT seems like opening a huge new can of worms. It would be much simpler to simply use the existing Medicare payroll tax with the appropriate increases.

Posted by Ron | November 2, 2007 11:26 AM

A VAT makes sense to pay for health care if you think VATs are a good idea on their own, as Kevin Drum seems to. They really have nothing specific to do with health care, as far as I can tell, and they are regressive, which makes me wonder why so many otherwise liberalish commenters (not including Matt, who's only slightly to the left of what used to be center and fairly significantly to the right of say, me) are excited about them this morning. Whatever.

Posted by Antid Oto | November 2, 2007 11:27 AM

Matthew, you forgot about your favorite tax, the one on cigarettes!

Cigarette taxes and VAT is the perfect solution. No need to deal with pesky income and capital gains taxes anymore, since they mostly target the rich who shouldn't be taxed since they are a better breed of human than the rest of us.

Posted by Quiddity | November 2, 2007 12:13 PM

One wonders if Huckabee will start proposing anything like this if he gets desparate.

Posted by Quietus | November 2, 2007 1:03 PM

A VAT is not a stealth tax. There is no reason it can't appear to the consumer exactly like a sales tax - stated separately from any purchase. And a VAT , cēterīs pāribus, would collect the exact same revenue as a sales tax at the same rate.

Posted by Tadams | November 2, 2007 1:25 PM

Well, what does a VAT tax?

It taxes the difference between goods and services sold and goods and services purchased, so that leaves, what? Payroll, profit, dividends, stuff like that.

We already tax payroll. We already tax profits (though not very effectively) and dividends (though that's being targeted by the right). Would a VAT be a more effective way of taxing this stuff than existing taxes?

I believe most countries we'd like to compare ourselves to--you know, not Brzgvstan--combine a VAT with a stiffly progressing income tax and find they have enough revenue to deal with problems we say we're too strapped to tackle. Whether that's a bug or a feature depends on you're politics, apparently.

Posted by jlw | November 2, 2007 3:13 PM