The case for a VAT
An excellent column by Henry Aaron and Isabel Sawhill.
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.
This is a good idea.
Last year, by the way, I praised a book by Zeke Emanuel which makes the same points while laying out a basic blueprint for healthcare reform. Healthcare, Guaranteed is still the best thing I've read on the conjoined issues of tax reform and healthcare reform. The policy in the works is not going to be like this, needless to say, but the country might get there in the end. For the reasons Aaron and Sawhill say, it had better. Unfortunately Emanuel has been silent on the subject since going on to the White House payroll (where he has faced a lot of brainless criticism on the "death panels" issue). I think he would be more valuable educating the public than advising the president.