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VAT On the Horizon

Several months ago, a friend met with a high government official and expressed concern that the new health care bill would be more expensive than people were saying.

“Oh yes,” said the official, “In several years, the United States will pass a value-added tax.”

After the bill passed, Charles Krauthammer wrote this column in the National Review saying the same thing:

American liberals have long complained that ours is the only advanced industrial country without universal health care. Well, now we shall have it. And as we approach European levels of entitlements, we will need European levels of taxation.

I believe that a VAT is a move in the right direction. (I distinguish for the moment between amounts of taxation and the form of taxation.) Current tax policy in the United States discourages saving and investment and rewards consumption. Think of the double taxation on what you earn as salary and then what you earn as interest on your savings; think of income taxes on corporate profits and then again on the dividends you collect. A VAT avoids those problems.

The problem with a VAT is that it is regressive in nature, affecting lower income people more than wealthier people because lower income people spend a bigger percentage of their income on consumables. But you can adjust for that with income-based rebates or exemptions.

But, there is the danger that this tax will be able to be increased with little public scrutiny. It will not necessarily be visible because it is added at each stage of production, and so Congress could just jack it up whenever it wants. Also, you don’t hear talk of reducing other taxes as this new one is introduced. That is why some people are nervous, like the gentleman quoted here :

“Jon Hurst, president of the Retailers Association of Massachusetts, said he fears a value-added tax would simply be used to fund new programs….”

The costs of health care reform were intentionally designed not show up in a big way until well into the next Presidential term. It is thus likely that it will be a few years before the debate begins in earnest, but it is on the horizon.

Paul Levy is the President and CEO of Beth Israel Deconess Medical Center in Boston. Paul recently became the focus of much media attention when he decided to publish infection rates at his hospital, despite the fact that under Massachusetts law he is not yet required to do so. For the past three years he has blogged about his experiences in an online journal, Running a Hospital, one of the few blogs we know of maintained by a senior hospital executive.

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MGbev M.D.RobSteve SMargalit Gur-Arie Recent comment authors
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MG
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MG

“You would suspect wrong, most of those making 20K or less are doing so because they refuse to put in the work required to make 200K. If they were working 60-80 hour weeks they wouldn’t be making under 20K” According to the most recent estimates from 2005 census data, 9.6 million, or more than 1 out 4 working families in America (29%), are low-income, earning less than 200% of poverty threshold ($39,942 in 2005 for a family of 4). Besides just dismissing the fact which you do with regularity Nate when it suits your purposes where are these jobs that… Read more »

Margalit Gur-Arie
Guest

“what is a fair wage for an idiot that comes to work high”
Nate, can you check what a kindergarten teacher makes where you live? or a dental hygienist? or the clerk at the courthouse? or the person that checks you out at the supermarket?

Nate
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Nate

“I suspect all of those with adjusted gross incomes below $20,000 and paying no income tax but substantial payroll taxes would happily change places with those earning $200,000 and above and gladly pay the relevant taxes on those incomes.” You would suspect wrong, most of those making 20K or less are doing so becuase they refuse to put in the work required to make 200K. If they were working 60-80 hour weeks they wouldn’t be making under 20K “car payment $500” Right here is your problem why in the world would a “poor” person be spending that much a month… Read more »

MG
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MG

VAT is probably coming and the biggest reason I am against it is not that it is an additional tax but that it picks winners/losers when you decide what to tax & what not to tax. You are seeing this already play out to some degree with state budgets this year. Given that their traditional revenues streams have cratered and likely aren’t going to return to 2008 levels until 2012 or 2013, they are desperate for ways to raise new revenues by adding new taxes on services. It creates an acrimonious environment in state capitals as lobbyists jockey to make… Read more »

MG
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MG

“If 47% are paying nothing where exactly do you want to start this measurement of progression?” Every conservative outlet has been pounding this figure the past week or so and yet they leave out some important facts like: 1. This percentage is only so high in part because of the very temporary income tax breaks that conservatives pushed as a part of the stimulus last year. They are set to expire relatively shortly. 2. This pool was greatly expanded by increasing the Earned Income Tax Credit during the Bush administration. The Bush administration did this in order to win enough… Read more »

bev M.D.
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bev M.D.

I normally do not read overtly biased media from either side, and never heard of the National Review until a conservative friend sent me some (garbage) from it. But this is interesting and relevant to your conversation:
http://corner.nationalreview.com/post/?q=YjQxNzNkMzBhZjJiNTQ2N2UyMTI1ZTUyMTQwOTQ4YjM=

Margalit Gur-Arie
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Yes, Nate, I do agree that everybody should pay some taxes. However, the reason so many people don’t pay taxes is because so many people are poor. I keep saying that $50,000 for a family of four is right on the cusp of poverty, but we calculate poverty in antiquated ways, so the family is considered middle class. This family, brings home less than $3750 per month. Mortgage or rent are an average of $1000, food is another $1000, utilities are about $500, car payment $500, gas $200, clothing $100, school supplies & expenses $100, incidentals (repairs, haircuts, traffic tickets,… Read more »

Wendell Murray
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Nate: The usual smattering of facts that are revelatory of nothing in particular, certainly not this nonsense, “that means 47% of the population voting for bank bail outs, take over of healthcare, and other higher tax bills aren’t actually contributing to them”. This, I suspect, is the reason that the extreme right-wing is raving about the most recent estimate on the number of USA households not having a tax liability. A much more revealing part of the Huffington Post article is this on this particular statistic: “The number of households that don’t pay federal income taxes increased substantially in 2008,… Read more »

Nate
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Nate

“extreme rightist commentary is idiotic. No facts and little or no logic in it.” Hi pot and Kettle meet Wendell. “Nate might want to check the statistics published by the IRS” Did and they show 39% and now 47% didn’t pay federal income taxes. http://www.huffingtonpost.com/2010/04/07/income-tax-47-of-american_n_529059.html “The bottom 40 percent, on average, make a profit from the federal income tax, meaning they get more money in tax credits than they would otherwise owe in taxes.” Huffington nut wing righty now Wendell? Would you call her invariably wrong or inapplicable in this case? Which would you label the NYT as that is… Read more »

Wendell Murray
Guest

“you might learn something” I’ve tried, but no such luck. Commentary from the likes of Steve S or Mao Bama (or something like that) is worse than useless and invariably deliberately and gratuitously insulting. Regrettably extreme rightist commentary is idiotic. No facts and little or no logic in it. How does idiotic not fit as an adjective to the reality of such commentary? Unfortunately I read much of it all too often in other venues. So far I have never seen a relevant fact to the topic at hand in any of it. Astonishing, but true, It never ceases to… Read more »

bev M.D.
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bev M.D.

Now Wendell, we just weaned Nate from insulting people and calling names, now to find you doing it. And the real nuts like Steve S. are ignored, not deleted. They do have right of free speech, no?
I think one has to keep in mind that, ideologically polarized as this blog (reflecting the country) may be, occasionally there is a nugget of truth in these comments from both sides, poorly expressed as it may be sometimes. Try to keep an open mind – you might learn something. I have.

Wendell Murray
Guest

“If 47% are paying nothing where exactly do you want to start this measurement of progression?” Apparently this percentage is apocryphal. Nate might want to check the statistics published by the IRS rather than depend on the nutcase right-wing grapevine for data – invariably wrong or inapplicable. I assume the statistic whatever it is in relation to income taxes is being hyped by extreme rightists to prove some point. The point escapes me however. The statistic relates to federal income taxes – obviously not to all taxes since everyone is liable for sales taxes, property taxes directly or indirectly and… Read more »

Nate
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Nate

“and I don’t see why you have no issues with spending it on encouraging corn syrup, beef and tobacco consumption, all leading to high health care costs, which in turn may be leading to VAT. Is this not the definition of insanity?” hum I must be getting old, but I can’t remember you ever asking me how I feel about tobacco consumption, when I’m allowed to speak for myself I actually advocate for employers being allowed to deny employement to smokers, healthplans being able to charge additional premium equal to the additional risk, testing anyone who receives public assistance of… Read more »

Wendell Murray
Guest

I think there is an argument to be made to delete commentary from Steve S, based on his comment above.
Idiotic right-wing commentary is already well represented in this weblog from Nate, MD as HELL, among a few others who at least can write paragraphs which are somewhat grammatically correct (well, maybe not Nate’s commentary), even if otherwise generally detached from reality, but which at least eschew the type of gratuitous offensiveness in Steve S’s comment.

Margalit Gur-Arie
Guest

I don’t see how this is your money, since it has not been collected yet. On the other hand, subsidies are indeed your money (and mine), and I don’t see why you have no issues with spending it on encouraging corn syrup, beef and tobacco consumption, all leading to high health care costs, which in turn may be leading to VAT. Is this not the definition of insanity?