Sunday, May 31, 2009
Editorial: Health care's taxing subtext
Some health care reform strategists are talking about a value-added tax. They'd have to overcome its regressive nature.
From the RoundTable blog
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Talk of health care reform could turn to talk of tax reform in Washington as policymakers consider how to pay for broadly expanded coverage from a budget already gushing red ink.
And, surprisingly, talk of tax reform could turn to talk of a valued-added tax -- surprisingly, because a VAT is a consumption tax, built into the price of goods and services. As such, it is regressive. It falls harder on the poor than the wealthy as a percentage of income.
That's a political taboo, and quite properly so.
Still, a VAT is the talk of the town, or that slender segment of the town immersed in tax policy, according to a Washington Post report last week -- though the story describes the idea as "attracting genuine, if furtive, interest in Congress."
A White House official, the newspaper went on to report, "said a VAT is 'unlikely to be in the mix' as a means to pay for health care reform."
Yet, White House Budget Director Peter Orszag has hired VAT advocate Ezekiel Emanuel as a health care policy adviser, and the head of the Obama administration's tax reform task force, former Fed Chairman Paul Volcker, is said to have expressed "at least tentative support for a VAT."
As the push for health care reform gathers momentum, taxpayers should pay careful attention to how the country will pay for it.
If the VAT turns out to be a serious option, Congress and the administration need to craft any proposal in a way that would be faithful to President Obama's campaign pledge not to raise taxes for families making less than $250,000 a year.
Advocates can argue realistically that a VAT-funded health care plan would be of greater relative value to low- and middle-income households now swelling the ranks of the uninsured or being slammed by the rising costs of coverage.
Still, a VAT of from 10 percent to 25 percent on every purchase -- including essentials like a gallon of milk or a watt of electricity -- could quickly break the budget of a family with modest means. That suggests a need for an income tax cut for most wage-earners, and subsidies for the poorest Americans.
A VAT would have to be just one component of comprehensive tax reform.
In a rational world, health care and tax reform would be linked, but reason seldom drives politics. At this critical juncture for the nation, this should be one of those rare times.
