VAT's no way to raise money for health care - value-added tax - Buyers & Sellers - Column

Discount Store News, May 3, 1993 by Don Longo

One has to wonder what Hillary Clinton and her health care tax force, I mean task force, have been smoking--and inhaling. Last month, the task force floated an trial balloon: a value-added tax or VAT.

More insidious even than a federal sales tax, a VAT is a sneaky way of collecting tax dollars, because it would add layer upon layer of new levies on goods all along the production pipeline. Many politicians love this idea exactly because VATs are confusing. Consumers won't necessarily know how much of a product's price is attributable to the VAT. It's imposed at every level of production on the value added at that level, and then passed on to the next level until it reaches the consumer in the form of a higher price. Because low-income an middle-income consumers spend a larger percentage of their money on goods and services than higher-income consumers do, the VAT is particularly regressive.

Politicians also love the VAT because of its potential to raise billions of dollars quickly. A comprehensive VAT of 5% can raise $500 billion over five years, estimated Cecilia Adams, director of tax, budget and health care for the International Mass Retail Association, which strongly opposes a VAT.

A recent study by Ernst & Young found that in contrast to executives in other industries, retailers are not supportive of a VAT. To raise funds, they prefer a gasoline tax increase and increased taxes on individuals with incomes in excess of $200,000. On how to help fund health insurance for all Americans, nearly two-thirds of retailers queried by Ernst & Young favor imposing a health care tax on businesses that do not provide coverage for employees, often called the "play or pay" plan. Less than one-fourth of those surveyed opted for taxing employees on employer-provided health care benefits.

This country cannot afford another round of new taxes on top of those already imposed by the Clinton administration. The Clinton task force should focus on holding down costs (perhaps improving real market competition rather than artificially managed competition), not just raising new taxes.