More VAT

MORE VAT….Matt Yglesias adds his voice to the tsunami of blogospheric support for a VAT to pay for universal healthcare, and then says:

All-in-all, I think this is an area where progressive politicians are going to need to figure out a way to get over their taxophobia. The sort of things liberals want to see happen require money, and that’s a real political problem. Trying to get around the need to raise this money through taxes — using various kinds of regulatory mandates and “fees” — may work pretty well when you’re only talking about a small amount of money, but when big bucks come into play it’s probably worth coming up with something straightforward, efficient, and comprehensible and just having the fight.

I agree, but this actually demonstrates one of the problems with a VAT: it’s a brand new tax, not just an increase in an old tax, and it isn’t remotely politically feasible to create a new tax unless it’s being used to raise a considerable amount of money for a big new program. This in turn means that it only really makes sense if it’s being used to fund a genuine, single-payerish national healthcare program.

But of course, that’s not what’s on offer right now, and it’s increasingly looking like that’s not how we’ll ever get universal healthcare. What we’ll get instead is a bunch of small, incremental steps that, over time, will add up to something that’s close to a universal program. The funding will be kludged together at each step of the way, so 20 years from now we’ll have a universal system cobbled together from a bunch of little initiatives mated with funding that’s likewise jury-rigged from a wide variety of minuscule incremental tax measures.

Which is too bad, since other countries have enough experience with this kind of thing that it’s quite possible to design a reasonably sensible program that gets the funding, the coverage, the cost controls, and the administrative apparatus pretty close to correct in a single try. Won’t happen, though, and no one will take on the risk of advocating for a VAT for the sake of funding some minor add-on to our current system.

So, anyway, that’s the downside of a VAT: it only makes sense if you have the political courage and will to pass a big new universal healthcare system in the first place. That doesn’t look very likely from where I sit.

On the other hand, there’s one criticism of a VAT (mostly from conservatives) that I’ve never understood: the charge that it’s a “stealth tax.” Liberal I may be, but I’m opposed to invisible taxes too. I think people should know how much they’re paying in taxes (this is a democracy, after all), and that this acts as a salutary brake on government inefficiency. But why is a VAT a stealth tax? Some of it is payed directly by businesses, which means the business community is well aware of it, and some of it is paid at the final point of purchase, which means consumers are aware of it. In Canada and Europe, I’ve never met anyone who didn’t know exactly what the current VAT rate was, and who didn’t complain about it loudly given half a chance. If a VAT is stealthy, so is the U.S. Marine Corps.