Once Considered Unthinkable, U.S. Sales Tax Gets Fresh Look
from Washington Post Online
No doubt a federal sales tax is coming. Personally, I don't mind as long
as it is reasonable and it extinguishes the personal income tax. What I
don't like is promoting a national health plan in conjunction with a
federal sales tax. I am pretty positive that their intentions all along
with getting "everyone" hooked-on pharmaceuticals and driving the prices
so high have been to incite people to clamor for and eager to embrace a
national health plan-one that will require a CHIP to participate. I urge
everyone to please just do some homework and engage in natural healing
modalities. Do not get sucked into their health care system. Those who
have already: disengage, be responsible and healthy. You are destroying
your health by participating in the established medical agenda--which is
killing people slowly via pharmaceuticals while robbing them on the way
to their graves. Buy books on herbs and natural healing. Be informed! Be
responsible for yourself! You are signing your own death warrant when/if
you allow the "system" to be responsible for you. When they OWN your
health, they own your power!
With budget deficits soaring and President Obama pushing a
trillion-dollar-plus expansion of health coverage, some Washington
policymakers are taking a fresh look at a money-making idea long
considered politically taboo: a national sales tax.
Demonstrators called for a suspension of value-added tax on food in
Manila last year. Such a tax is attracting real interest among U.S.
Common around the world, including in Europe, such a tax -- called a
value-added tax, or VAT -- has not been seriously considered in the
United States. But advocates say few other options can generate the kind
of money the nation will need to avert fiscal calamity.
At a White House conference earlier this year on the government's budget
problems, a roomful of tax experts pleaded with Treasury Secretary
Timothy F. Geithner to consider a VAT. A recent flurry of books and
papers on the subject is attracting genuine, if furtive, interest in
Congress. And last month, after wrestling with the White House over the
massive deficits projected under Obama's policies, the chairman of the
Senate Budget Committee declared that a VAT should be part of the
"There is a growing awareness of the need for fundamental tax reform,"
Sen. Kent Conrad (D-N.D.) said in an interview. "I think a VAT and a
high-end income tax have got to be on the table."
A VAT is a tax on the transfer of goods and services that ultimately is
borne by the consumer. Highly visible, it would increase the cost of
just about everything, from a carton of eggs to a visit with a lawyer.
It is also hugely regressive, falling heavily on the poor. But VAT
advocates say those negatives could be offset by using the proceeds to
pay for health care for every American -- a tangible benefit that would
be highly valuable to low-income families.
Liberals dispute that notion. "You could pay for it regressively and
have people at the bottom come out better off -- maybe. Or you could pay
for it progressively and they'd come out a lot better off," said Bob
McIntyre, director of the nonprofit Citizens for Tax Justice, which has
a health financing plan that targets corporations and the rich.
A White House official said a VAT is "unlikely to be in the mix" as a
means to pay for health-care reform. "While we do not want to rule any
credible idea in or out as we discuss the way forward with Congress, the
VAT tax, in particular, is popular with academics but highly
controversial with policymakers," said Kenneth Baer, a spokesman for
White House Budget Director Peter Orszag.
Still, Orszag has hired a prominent VAT advocate to advise him on health
care: Ezekiel Emanuel, brother of White House chief of staff Rahm
Emanuel and author of the 2008 book "Health Care, Guaranteed."
Meanwhile, former Federal Reserve chairman Paul A. Volcker, chairman of
a task force Obama assigned to study the tax system, has expressed at
least tentative support for a VAT.
"Everybody who understands our long-term budget problems understands
we're going to need a new source of revenue, and a VAT is an obvious
candidate," said Leonard Burman, co-director of the Tax Policy Center, a
joint project of the Urban Institute and the Brookings Institution, who
testified on Capitol Hill this month about his own VAT plan. "It's
common to the rest of the world, and we don't have it."
Seeking New Revenue
The surge of interest in a VAT is testament to the extraordinary depth
of the nation's money troubles. While some conservatives have long
argued that a consumption tax would provide a simpler and more efficient
alternative to the byzantine U.S. income tax code, this time it's all
about the money.
The federal budget deficit is projected to approach $1.3 trillion next
year, the highest ever except for this year, when the deficit is
forecast to exceed $1.8 trillion. The Treasury is borrowing 46 cents of
every dollar it spends, largely from China and other foreign creditors,
who are growing increasingly uneasy about the security of their
investments. Unless Congress comes up with some serious cash, expanding
the nation's health-care system will only add to the problem.
Obama wants to raise income taxes for high earners and impose new levies
on business, but those moves would not generate enough cash to cover the
cost of health care, much less balance the budget, and they have not
been fully embraced by Congress. Obama's plan to tax greenhouse-gas
emissions could raise trillions of dollars, but again, Congress is
Key lawmakers are considering other ways to pay for health reform,
including new taxes on sugary soda, alcohol and employer-provided health
insurance. The last proposal could raise a lot of money -- nearly $1
trillion over the next five years, according to White House budget
documents. But options on the table would raise a fraction of that sum.
And while it might pay for health care, it would barely dent deficits
projected to total nearly $4 trillion over the next five years and to
grow rapidly in the future, as baby boomers draw on Social Security and
Enter the VAT, one of the world's most popular taxes, in use in more
than 130 countries. Among industrialized nations, rates range from 5
percent in Japan to 25 percent in Hungary and in parts of Scandinavia. A
21 percent VAT has permitted Ireland to attract investment by lowering
its corporate tax rate.
The VAT has advantages: Because producers, wholesalers and retailers are
each required to record their transactions and pay a portion of the VAT,
the tax is hard to dodge. It punishes spending rather than savings,
which the administration hopes to encourage. And the threat of a VAT
could pull the country out of recession, some economists argue, by
hurrying consumers to the mall before the tax hits.
A VAT's Bottom Line
What would it cost? Emanuel argues in his book that a 10 percent VAT
would pay for every American not entitled to Medicare or Medicaid to
enroll in a health plan with no deductibles and minimal copayments. In
his 2008 book, "100 Million Unnecessary Returns," Yale law professor
Michael J. Graetz estimates that a VAT of 10 to 14 percent would raise
enough money to exempt families earning less than $100,000 -- about 90
percent of households -- from the income tax and would lower rates for
And in a paper published last month in the Virginia Tax Review, Burman
suggests that a 25 percent VAT could do it all: Pay for health-care
reform, balance the federal budget and exempt millions of families from
the income tax while slashing the top rate to 25 percent. A gallon of
milk would jump from $3.69 to $4.61, and a $5,000 bathroom renovation
would suddenly cost $6,250, but the nation's debt would stabilize and
everybody could see a doctor.
Sales Tax Gains Momentum
Burman, who helped House Democrats craft an unsuccessful 2007 plan to
repeal the alternative minimum tax, said he's received a number of phone
calls from lawmakers interested in his idea, though "they can't quite
imagine how to make it happen politically." Burman said the 25 percent
rate has caused some sticker shock, and he's trying to figure out how to
bring it down.
Graetz's proposal drew an endorsement from Volcker, who last year called
it "a sensible plan for reform." (Volcker did not respond to a request
for comment.) It also has piqued the interest of Conrad, the Senate
Budget Committee chairman who argues that it could be modified to
accommodate Obama's pledge not to raise taxes on families who make less
than $200,000 a year.
"I think interest is quietly picking up," Graetz said. "People are
beginning to recognize that the mathematics of the current system are
just unsustainable. You have to do something. And a VAT has got to be on
the table if you want to do something big and serious."
Still, the Senate Finance Commexpittee declined to include a VAT among
the options it is considering to pay for health reform. And even VAT
supporters doubt the tax will find a place among the tax-reform
proposals the Volcker panel has been asked to produce by Dec. 4.
Though the nation's fiscal outlook is grim, Burman said "the situation
will have to get more desperate" before lawmakers are
likely to consider a new levy aimed directly at the pocketbooks of every
one of their constituents.
Most lawmakers are still looking for "a painless source of revenue" to
overhaul the health-care system and dig the nation out
of debt, Burman said. "Who knows?" he added. "Maybe the tooth fairy will
bring that to them."
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