If health care reform crashes, is there a value added tax in our future?
Aug 20th 2009 10:00AM
Updated Dec 4th 2009 12:51PM
For the nation as a whole, health care is a case of 'pay me now or pay me a lot more later.' Former U.S. Federal Reserve Chairman Alan Greenspan suggests that, absent major reform of the current system, the pressures on Medicare, Medicaid, and Social Security will grow so great that the nation will be compelled to add a new revenue source: a value-added tax.
A value-added tax acts as a sort of national consumption tax on a product or service. Some have referred to it as a national sales tax. It can be applied to some or all stages of production and consumption. Popular in many European economies, a VAT is one taxation method that would increase federal revenue by a substantial amount.
The VAT downside? It would represent another cost of doing business in the United States -- something that, in the globalization era, would make the nation less attractive to companies compared to other, lower-tax regions of the world.
If Congress does not approve health care reform, is there a way the United States can avoid adopting a new revenue source? Yes, if Congress essentially guts Social Security, dismantles Medicare, or places a cap on the Medicaid case load.
How likely is Congress to take any of those unprecedented actions? Think the problem is merely the Democratic-led U.S. Congress? Try this basic political science exercise: Replace the current Congress with a Republican-led Congress. Then pass major cuts in Social Security. Then watch what happens to that Republican-led Congress in the next election.
In addition to doing little to relieve the federal budget deficit, the failure to pass healthcare reform also will keep U.S. corporations at a disadvantage, from a health insurance cost standpoint.
U.S. corporations will continue to pay high (and rising) health insurance premiums and remain at an operational disadvantage compared to their European and Asian counterparts. Those higher costs will likely translate into business contract losses for the U.S. and more wins for Europe and Asia as the globalization era progresses.
Financial writer Joseph Lazzaro is writing a book on the U.S. presidency and the U.S. economy.