With the current economic crisis it is time to take a fresh look at a money-making idea long considered politically taboo: a national sales tax.
Although 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 financial calamity.
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.
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 balking.
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.
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 co-payments. 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 everyone else. Graetz’s proposal 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.”
And in a paper published last month in the Virginia Tax Review, Leonard Burman, co-director of the Tax Policy Center, 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.
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.
Unless those constituents call, write, and email their Senators and Representatives and tell them that we want a VAT and will only vote for lawmakers who support a national sales tax. I’m willing to pay a little more for a gallon of milk if it means I can see a Dr. when I need to and I don’t have to pay income tax. I’ve been walking around on a broken foot for two years because I can’t afford to see a doctor. Exchanging an income tax for a sales tax plus health care sounds like a damn good deal for me. How about you?
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