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Yet More VAT
A couple of days ago the New York Times reported that House Democrats were considering a VAT (a tax similar to a national sales tax) as a partial funding source for national healthcare. Today AP reports this again. Jon Cohn is pleased. Ezra Klein isn't.
I continue to think this isn't a serious possibility. The VAT is just one of half a dozen potential revenue sources that Ways & Means is considering, and in the end my guess is that the others are far more likely to be approved than a VAT. But I'm happy to see this on the table anyway. One of these days I think we're going to need a VAT as a funding source for healthcare, but it's not going to happen until the ground has been prepared and it morphs from being viewed as an outré piece of European socialism to being just an ordinary and familiar option to argue over. It's an Overton window kind of thing, and the sooner it gets started the better.
Bruce Bartlett has more on the VAT here and here. I've written about it here. Properly constructed, it's transparent, reasonably progressive, able to raise significant sums, and economically efficient. It's worth trying to give it a higher profile.
Not progressive
Give me a break! Kevin factors in benefits to make a VAT look progressive, supposing that the benefits would be equally distributed. If Cato Institute did that, we would laugh. In his example in WM of lower income and higher income people, the higher incomes pay a lower rate. The tax itself is plain regressive.
And it's bad policy. Europe's VAT and Japan's consumption tax are inhibiting spending, just what we don't need right now. Instead we need high marginal rates on the income of very wealthy. When there is a demand shortage, a redistribution of wealth to those with high marginal propensities to consume is what is needed.
Supply-side policy is the wrong prescription right now.
nationalize the credit card industry
Why not nationalize the credit card industry and use the profit from that to pay for national health care for everyone?
Because nationalisations kill profits
And of course nationalising credit cards / revolving consumer credit, besides not having any real justification (other than seizing private profit rather than honestly taxing it), would simply hand you declining credit portfolios, which would be managed in a populist rather than business direction.
Worst of both worlds.
Oddly, I find myself agreeing with G. Powell's comments of late.
You've seen the light,
You've seen the light, Lounsbury.
Why yet another tax?
I fail to see the attraction of creating yet another complicated tax mechanism. Why not simply adjust the rates of the existing income tax?
Kevin says: "One of these days I think we're going to need a VAT as a funding source for healthcare," but why? What does a VAT accomplish that increased income taxes do not?
Progressiveness exagerated
Taxing consumption rather than savings may have some modest benefits for growth - energy and pollution taxes share this same advantage.
I'll note though that higher income groups tend to use more Medicare services than lower income groups. I would expect the same pattern to hold with national health care. So Drum's Nov 2007 Washington Monthly post overstates the progressivity of the Universal Health Care-VAT combination.
Wrong
Drum doesn't overstate the progressivity of a VAT tax, he makes it up. In his example higher income people pay a lower rate, so by definition it is a regressive tax, pure and simple.
And you don't factor in govt spending received when judging if a tax is progressive, that analysis would be impossible. It's all about the tax, benefits received are not in the picture.
If U.S. consumer spending were still out of control and the economy was hitting supply constraints, I'd be all for a VAT. But we now face the opposite problem on a global scale. Japan made a huge error by imposing a consumption tax in the mid-1990s, plunging it back into recession. Why would we want to repeat that?
That said, I am in favor of a carbon tax, which is also regressive, but at least it would help solve energy overconsumption. A good tax not only raises revenue, but also changes behavior in a beneficial way.
If we have to raise taxes
If we have to raise taxes for healthcare, why not a carbon tax? kill two birds with one stone
Just another step on the
Just another step on the path to nationalization of the individual. Move the Overton window you say. Move it all the way to the left and let us see what progressives really want. The way I see it, an individual has a "right" to food, clothing, shelter, health care, education, and whatever else a progressives feels is necessary for a "fair" piece of the pie.
Unfortunately, all these rights assume that some set of suckers will actually work, so they can be taxed. In the UN Declaration of Human Rights, is it a convenient oversight that there is no declaration of human responsibility? The progressive vision is for 80% of the people to be supported by the slavery of the other 20%. Just do it a little bit at a time and the frogs won't know they are being boiled.