Len Burman’s Brief for a Health Care VAT

By :: April 24th, 2014

In the cover essay in the current issue of The Milken Institute Review, Len Burman calls for a Value-Added Tax (VAT) to pay for government health care costs.

Len, the director of Tax Policy Center (and, thus, my boss), argues that a dedicated—and fully transparent--health care VAT would increase public support for efforts to slow the growth of medical costs. That’s because the VAT would rise, for all to see, with increases in government health spending. In effect, we’d be confronted with an explicit choice: Pay more tax or support steps to control health care cost growth.

Len’s argument is provocative, to say the least. And the article is accompanied by some art that is, umm, unusual. Thomas Piketty’s charts and graphs have nothing on this. (btw, Len had no role in creating the images).

Give Len’s essay a read, and let us know what you think.

7Comments

  1. Michael Bindner  ::  1:42 am on April 25th, 2014:

    Len held this position in the Virginia Tax Review. He is absolutely correct if the goal is an entirely governmental system. I propose using a hidden-VAT – a Net Business Receipts Tax – which could pay for health care by the government, private premiums or the direct purchase of medical, specialist and hospital services – the latter two options as an offset to paying the tax. Other offsets might be an education credit (elementary/secondary and/or vocational/college) – and most importantly a much larger tax credit for each dependent child or stay at home parent.

  2. Tax Roundup, 4/25/14: Why the move to tax return selfies? And: Iowa’s unhappy high ranking. « Roth & Company, P.C  ::  10:07 am on April 25th, 2014:

    […] Howard Gleckman, Len Burman’s Brief for a Health Care VAT: […]

  3. AMTbuff  ::  11:13 am on April 25th, 2014:

    This is a reasonable way to finance massive government spending on health care, but first we need to change the incentives. The current system encourages all parties to overspend on health care. We have defensive medicine, zero or low marginal cost to the patient for treatments of limited value, and people paid to fight each other over pricing and authorization. Market-based reforms could eliminate most of this waste. It would not be perfect, but it would be affordable.

    Social security prevents people from having no money in their old age. It’s not perfect. It doesn’t cover absolutely everyone, and it doesn’t provide enough money for a person to live alone comfortably. But it’s better than nothing.

    Government health care programs should emulate Social Security’s partial coverage for most people rather than shooting for the Moon. Protect most people from financial ruin, but require people to bear the marginal cost of their decisions. For example, if you are overweight your financial protection will be less because the government will not pay extra for your excess weight. What if your weight is truly not your fault? That will be one of the holes in the safety net, just as Social Security has a hole for people who were unable to work.

    Perfection is unaffordable. Let’s pursue modest, imperfect insurance against financial ruin. When we have a program with limited and defined cost to the government, we can talk about what taxes should pay for it. We shouldn’t feed the current system as long as it remains a rat hole for revenue.

  4. Sarah  ::  6:12 pm on April 26th, 2014:

    You know it’s the same in any other field.
    You would think history showes us at least anything, but alas.
    Disagree if you will but the world changes, and we have no control whatsoever over it.
    For instance, If only Obama had enough balls to put Putin to his place, but it seems like it’s never happening, welcome third world war.
    A very deep post, thanks!

  5. Ralph H  ::  6:14 pm on April 26th, 2014:

    I enjoyed the article, but am puzzled by the need for additional revenues for healthcare. We got assurances that the ACA was self funding, and the Medicare prescription drug benefit passed with no funding source. Our payroll taxes are supposed to fund Medicare. Don’t tell me people have lied!

    I think it is inevitable that we will someday have a VAT when we get real leadership in DC. As Len says there must be a tradeoff. I don’t buy healthcare, but maybe it could be real reform in the code — eliminate taxation on first 50K each PERSON earns. This could replace EITC or other subsidies, and incentivize lower earners to work W2 jobs as there would be no more net income than working under the table. If you want an EITC refund only payroll taxes. Income above 50 (100)K could be taxed in 2 brackets. I would tie the upper bracket to he SSI max. Do not put in any phony AMT or bracket creep. Consider no deductions, even for charities.

    As someone who is conservative I like taxing everyone. I know most other conservatives hate it but most “Red” states are comfortable with a sales tax and low or flat income tax. “Blue” states would love a new income source that does not drop off in recessions and rises with inflation & GDP growth. It also hits drug dealers, hookers and muni bond clippers who currently do not pay their fair share. It also incentivizes work.

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