Tax Analysts Blog

When Health Wonks Do Tax Policy

Posted on Jun 16, 2009

Paying for healthcare reform was never going to be easy. The Obama Administration has tried to finesse the issue, using tax hikes on the few to finance healthcare for the many. Congress has kicked in a few other ideas, including limits on the health benefits exclusion (good idea) and a basket of sin taxes on alcohol and soda (bad idea).

Taken as a whole, this scattershot approach to financing healthcare reform is self-defeating. Piecemeal funding makes for piecemeal reform. Each of the proposed revenue raisers has a vocal constituency organized to defeat it. And one by one, they've been picking them apart for weeks. At this point, there's precious little left on the table, and healthcare reform seems poised to fail for lack of real funding.

Big reforms need big taxes. Belatedly, a few lawmakers seem to be coming to that same conclusion. Apparently, they're even talking about a value-added tax.

That's a great idea. Or it was, several months ago. This late in the game, though, a VAT is almost certainly a nonstarter. As Ezra Klein observes, it's not well-suited to the type of health reform currently under consideration. Since VAT revenue would be used to finance new coverage only for the previously uninsured, anyone with existing coverage would be paying in but getting nothing in return. A VAT works best (politically) when it's used to pay for universal, single-payer coverage.

In a blog post back in April, Klein mulled Len Burman's suggestion that a VAT might be used to finance healthcare. Then, as now, Klein was interested but unconvinced:

    All that said, I'm not a huge fan of Burman's proposal, as it largely amounts to a tax wonk's view on health reform, and in doing, elides a lot of the politics of the health care issue.

Well, maybe so. But now we have the opposite problem: By crafting a healthcare plan without first giving serious thought to financing it, we've ended up with a health wonk's view on tax reform. Which, predictably, elides the politics of taxation.

Good luck with that.

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