Wednesday, October 14, 2009

A Value Added Tax Is NOT the Answer!

Henry J. Aaron and Isabel V. Sawhill have one crazy column in the Washington Post this morning.

Suddenly, it seems, this "deficit neutral" health care reform will need some help from a value added tax. Obamacare isn't so deficit neutral, after all. Let's take a look at their proposal:

They first address the point that Obamacare aims to curb Medicare spending and note that as baby boomers retire, Medicare ranks are going to swell. Something must be done!

This is my first real point of contention with the Aaron and Sawhill:

"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. "

I think a lot of people realize that, but the point is that government has no business paying for a lot of that anyway. Many would argue that health care should not actually be a "government service." Oh, I know - that's what Medicare is, but I don't think you'll find many that agree that Medicare is perfect, either. So fix what's wrong with Medicare before you go jacking up my plan that works just fine, thanks. Meanwhile, our government has massive entitlement programs that pay for things that they shouldn't be funding in the first place. Fix that.

Aaron and Sawhill's conclusion is to add another tax, and more bureaucracy, to the mix. Let's impose a value added tax! Obama's already broken his promise not to raise taxes, so what's the difference?

There's a huge difference.

Aaron and Sawhill say (emphasis mine):

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.

There are some problems here. First of all, a VAT actually curbs spending. Not what we need in a recession. In fact, Aaron and Sawhill as much admit to this when they say that "Consumers would be encouraged to buy now, before the tax takes effect." In other words, "Woah Nellie! Once that VAT kicks in, we aren't going to buy that big screenTV!"

And that whole thing about Americans getting the "health care they are willing to pay for" business? I already am. But that's not what's going to happen with Obamacare. I'll get inferior care, rationing, and in addition, I'll be paying for some other lucky duck to get the same thing.

In addition, their plan assusmes that unemployment is going to return to some normal level within five years, but I haven't seen the guarantee on that one yet. In fact, as private insurance companies fold up their tents and go home once a public option comes into the mix, many more will be unemployed. There's a domino effect in play then. Unemployment will rise.

And as if Obamacare doesn't add enough new bureaucracy, lets now all a "heath-care trust fund" to manange, which is something like health plan savings accounts suggested by the Republicans, but of course, people are too stupid to do that for themselves so the government has to do it.

And finally, Congress will have to raise taxes again if this doesn't work.

Are you loving this plan, yet?

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OldSouth said...

Very informative, and thanks.

I am reminded by this verbiage of the 'Social Security Trust Fund', which is a shell, nothing but IOU's, as the excess revenue collected from the 1980's forward (to fund the coming actuarial surge of baby boomers) was spent for general budget needs as it came in.

Would this proposal not be a repeat of that?

I keep hearing large numbers tossed about as well concerning our present unfunded obligations. What we face now is a near mathematical impossibility, before adding yet another entitlement to the burden our children will have to carry.

Donna B. said...

Like 'OldSouth' I was reminded of the SS fund too.

And also reminded of my youngest's first attempts at a budget when she got a job.

She'd make out two or three very reasonable budgets on paper, but somehow in her mind, if an item was on either budget she could afford it.

She was 15. She's learned better now, but Congress just keeps getting worse.

Bungalow Bill said...

You'd have to be lacking common sense not to understand new and increased taxes are going to follow this fiasco once it is passed.