Thursday, November 01, 2007

Ezra Klein and Kevin Drum argue if favor of a Value Added Tax to fund universal health insurance.

Basically they argue that it is better than an employer mandate as proposed by the Clintons in 1994. Drum's first point, which is very convincing, is that small businessmen hate employer mandates. The National Federation of Independent Business was not only grammatically odd (they federated one business or are they trying to influence the policy of the United State of America?) but also the earliest and fiercest opponent of Clinton care but is now willing to negotiate ... anything but an employer mandate "as near as I can tell, their only really deep concern is and always has been making sure that small businesses aren't singled out to pay directly for national healthcare."

I would also add that the employer mandate implies greater than necessary reductions of employment and is regressive given that the costs will be partly born by workers and uninsured workers are underpaid.

However, better than Clinton care is a very low bar. Why exactly a VAT and not, say in increase in income taxes ?

Here Drum seems stumped. He says a VAT isn't too progressive "It's a universal tax, not just a tax on the rich. As FDR recognized, people don't want charity. They want to feel like they're getting something they've paid for. A VAT can be structured so the rich pay more (see below), but everyone pays something." I don't think that FDR ever saw the same polls I have seen. "Just a tax on the rich" strikes me as a pretty good slogan. Polls show that people feel they are paying quite enough taxes already so one had better raises taxes on fewer than everyone.

Drum argues that a VAT would be simple and wouldn't single any group out
"1) There's no pay-or-play mandate (i.e., either provide healthcare or pay a special tax). Businesses hate this, and small businesses really it, since they're the ones who usually have to pay. Conversely, a VAT is simple and universal, treating everyone equally."

except for the exceptions

"2) Very small businesseses are usually excluded from a VAT, so tiny startups and one-man shows don't have to worry about it."

and

"4)Most VATs exclude some items in order to keep the hit on the poor low. If you exclude food and housing from the VAT, for example, a VAT is relatively progressive. (Not as much as a progressive income tax, but not too bad either.)"

So sure it's all going to be simple and everyone will be fairly treated, because there will be no disagreement about how big a business has to be to be taxed or which items are exempted.

Also why are tiny businesses not included ? Basically because it would cost too much to get the money out of them as the system of VAT enforcement requires the collection of a huge amount of additional information, is very complicated and is subject to fraud (recall I live in Italy).

Setting one up would be a Dog awful monster hassle with most of the burden falling on, you guessed it, small businesses. Believe me Kevin, if you try to introduce a VAT the National Federation of Independent Business will get vituperative again.

Why not just soak the rich and make everyone but them happy ?

I think an increase in income taxes owed by the richest few percent would be much more politically feasible and much better policy.

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