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![handle is hein.taxfoundation/iretbyln0118 and id is 1 raw text is: May 3, 1993 No. 118
Financing Government Health Services
With A VAT Would Sicken America
On April 14, in a major shift from previous
Administration pledges, prominent members of the
Clinton Administration began suggesting that a value
added tax (VAT) might be just the
the health care plan that the task
force headed by the President's
wife is developing. Donna Shalala,
Secretary of Health and Human
Services, said Certainly we're
looking at a VAT. Alice Rivlin,
deputy director of the Office of
Management and Budget, concurred
that the Clinton health-care plan
would take some more resources,
and a VAT or a general sales tax
has a good deal to recommend it.
Under pointed questioning, White
ticket for funding
Even without a V
Clinton's budget
in crease practical
category of taxati
Adding a VA
national sales tax
would greatly
strains.
House communications director George
Stephanopoulos admitted that a VAT is being looked
at at some level in the [health-care] task force [headed
by Hillary Rodham Clinton]. Contrary to these trial
balloons, it is difficult to imagine less appropriate
circumstances for introducing a VAT or any other
national sales tax.
Three weeks earlier, Mr. Stephanopoulos had
categorically said that a VAT will not be in the
[health-care] proposal. And in February, President
Clinton had given his assurance that a VAT, if it ever
came, would be years down the road.
IRETMw'
Byline
Institute for
Research on the
Economics of
Taxation
A VAT is a type of sales tax and can be compared
in that respect to a retail sales tax. The difference is
that a VAT is collected at every production stage on
the value added at that stage. For example, if a firm
buys $80 of inputs from other businesses and then
uses the inputs to produce an output that it sells for
$100, the firm's value added is $20. (Although a
VAT is more complicated than a retail sales tax, they
have approximately the same cumulative tax base, and
much of what is said about a VAT would apply also
to a national retail sales tax.)
Even without a VAT, President Clinton's budget
plan would increase practically every major category
of taxation in sight: higher individual income tax rates,
a higher corporate income tax rate, higher estate and
gift tax rates, new and higher excise taxes (notably the
proposed Btu energy tax), and higher social security
taxes. This wave of tax increases
would, by itself, significantly raise
tax burdens and marginal rates,
plan would thereby intensifying the tax
pla wvy od distortions that hobble the
on in sight ... economy's performance.
r (or other Adding a VAT (or other
) to this brew national sales tax) to this brew
worsen the would greatly worsen the strains.
If the Clinton health plan were
adopted and mostly funded with a
VAT, the new tax would
immediately increase people's tax liabilities by $30 to
$90 billion annually (depending on the spending plan's
price tag.)
A federal VAT would also impose on the
American public billions of dollars of annual
paperwork costs on top of the tax system's already
massive administrative costs. Elevating the paperwork
costs further, it is likely that in reaction to political
pressures and Washington's penchant for
micromanagement, any U.S. VAT now enacted would
have multiple rates and numerous exceptions. (A
guide here may be the Btu tax, which was complex
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