A Really Controversial Tax Proposal

We won't like it but it is on the mark. We need it to promote economic growth. About 100 other countries have similar taxes. These taxes are rebated when we export goods, and they would improve our trade balance, and increase jobs in manufacturing.




Bend the Revenue Curve
Health Reform Alone Won't End Deficits

By Henry J. Aaron and Isabel V. Sawhill
Tuesday, October 13, 2009

Anyone who thinks that health-care reform alone is going to close the massive current -- and even larger projected -- U.S. budget deficit is deluded. President Obama has pledged that health-care reform will not make matters worse. But that isn't good enough. There is no way to restore this nation to fiscal health without higher taxes -- for the middle class as well as for the rich. The only question is when. Those increases should be enacted now, phased in gradually after the recovery is well established, and tied to the increased spending that health-care reform will generate.

Budget analysts recognize that mushrooming future deficits are traceable largely to growth in health-care spending. That is why so much emphasis is being placed on "bending" the health-care "cost curve." But there is a problem with that slogan. Slowing the growth of health-care spending will take many years. Extending coverage raises spending now. The president has sworn not to sign health-care reform that boosts the deficit. Something has to fill the gap.
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The bills before Congress rely largely on slowing the growth of Medicare spending. But Medicare will require increased revenue as the baby boomers retire, even if the program's structure is materially changed. In addition, science will keep churning out new and better medical interventions that will improve our lives. Patients will insist on having them, and they won't be cheap. As the baby boomers retire over the next quarter-century, they will age into heavy use of health care. So as improved efficiency "bends" the curve, the best we will be able to do is slow the growth of health-care spending.

It would be a miracle if that slowdown were sufficient to both pay for expanded coverage and balance the budget. The dirty secret, known to responsible fiscal experts of both parties, is that the revenue generated under current tax laws cannot pay for the government services -- health care and everything else -- that Americans want for their children, their parents and themselves.

So here is what we propose: Congress should enact a value-added tax, the equivalent of a broad-based sales tax on all goods and services. It should take effect only after unemployment has fallen to a predetermined level or in, say, five years, whichever comes first. Congress should link revenue from the new tax and other sources directly to public health-care spending through a newly created health-care trust fund. The trust fund would pay for all federal health-care spending. This framework would mean that Americans would get the health care they are willing to pay for. If spending outpaces projections, Congress will have to choose between raising taxes and finding ways to slow the growth of spending.

By balancing revenue and health-care spending, such a reform would help solve America's long-term fiscal problems. In the near term, it would also support and sustain the economic recovery. Consumers would be encouraged to buy now, before the tax takes effect. And by showing financial markets that Congress is determined to put our fiscal household in order, it would help keep interest rates low and encourage investment. The trust fund mechanism would strengthen incentives to institute reforms that will actually bend the health-care cost curve, because measures to slow the growth of health-care spending would avoid unpopular future tax increases that would otherwise be necessary.

Yes, the United States needs to control its health-care spending. Yes, it is important to curtail low-priority government spending. But the inescapable truth is that deficits will grow unless taxes increase. The bottom line is that an earmarked tax to pay for health care would solve a lot of problems. It may be true that a crisis is a terrible thing to waste. But the failure to prevent a massive future crisis would be a regrettable failure of leadership.


Henry J. Aaron and Isabel V. Sawhill are senior fellows in economic studies at the Brookings Institution.


http://www.washingtonpost.com/wp-dyn/content/article/2009/10/12/AR2009101202389.html

"other countries have similar taxes"

Other countries also have a far higher proportion of tax revenue aimed at progressive social programs that encourage positive intergenerational mobility. This will be just another straw on the camel's back that is the American Middle Class. The health reform, in its current shape, is no where near beneficial enough to mitigate the effects of this regressive tax on the people.

which inherently affects low-income taxpayers much worse than the wealthy. Why the hell not return to a progressive tax structure?

This situation where frauds in the financial industry reap millions while honest workers can barely scrape by - if they can get a job at all - is untenable and immoral. We need to get away from the debt-based economy that permits this distortion in the proper distribution of wealth.

is the only thing that will be accomplished by a VAT at this point.

We'll talk about it once we have a more progressive tax structure in place and the rich are actually starting to fund the imperial wars they're so fond of.

They'll let us shine their shoes. The wealth will trickle down, I tell you.


Capitalism is the economic equivalent of the Stockholm Syndrome

Why should half of our budget go to one expenditure??