COULD WE SEE A NATIONWIDE SALES TAX?
Will a VAT become reality? How about Internet or energy taxes?
How do you pay down an $8 trillion debt? The Obama administration needs an answer, as the non-profit Congressional Budget Office says America's debt could rise to $20 trillion by 2020.1 One possible answer has a very European ring to it: a VAT, or value-added tax.
What are the chances of Americans paying a national sales tax? And what about an Internet tax? Or an energy tax? Are they also possible?A VAT of bubbling controversy. Last year, Obama administration economic adviser Paul Volcker mentioned the possibility of a value-added tax. The CBO is now studying the idea.2
India and the member states of the European Union have VATs: sales taxes imposed on producers, distributors and consumers as a product makes its way through the marketplace. VATs collect a great deal of state revenue while discouraging tax fraud. In France, the VAT is 20%; in Germany, 19%.1The VAT would not replace our federal income tax, just supplement it. So the furor we saw over health care reform might pale in comparison to the protests over this.
Volcker thinks a VAT is "not as toxic an idea" to America in 2010 as it might have been decades ago. White House budget director Peter Orszag thinks it will never fly, calling it "popular with academics but not seriously considered by policy makers."3
A VAT could generate trillions. The CBO says each percentage point of VAT could bring in $1 trillion in the next ten years. It also projects that the health care reforms will cost $2 trillion or more over that period.1
Some economists and political analysts think a VAT is inevitable. Why, exactly?
Peter Orszag's office, the Office of Management and Budget, has projected federal government expenses of $5.7 trillion for 2020. However, it estimates that the government will only collect $4.7 trillion in total taxes in 2020, meaning a deficit of $1 trillion. Well, at least that's better than the 2010 shortfall of $1.6 trillion, right? Yes, but ... the OMB projects income tax receipts of just $2.3 trillion in that year. So if Washington wants to wipe out a 2020 deficit using its #1 revenue generator, it would have to collect 44% more in income taxes, which is unthinkable.3
Rather than trying to do that, it could put a VAT in place - a major tax to be sure. Think double digits. By federal projections, if the government charged Americans a 7% national sales tax on every consumable in 2020, then it could raise $1 trillion. If it spared essentials like food and clothing from VAT (it likely would), then the VAT would need to be higher than 7%.3
One major gripe about VATs around the world is that they burden the poor. Certainly, poor people in America would be pinched by a VAT, possibly to the point of federal subsidy.
However, the government needs a lot of money in a short window of time, and the VAT is beckoning, with voices such as Volcker, Nancy Pelosi and John Kerry bringing up the idea.
An Internet tax? Back in 1998, President Clinton signed the Internet Tax Freedom Act into law, which prohibited federal, state and local governments from charging bandwidth taxes, email taxes and Internet access taxes. It was extended in 2007 with President Bush's signature.4
However, the National Broadband Plan out in April from the Federal Communications Commission contains Recommendation 4.20: "The federal government should investigate establishing a national framework for digital goods and services taxation." It also says, "Recognizing that state and local governments pursue varying approaches to raising tax revenues, a national framework for digital goods and services taxation would reduce uncertainty and remove one barrier to online entrepreneurship and investment."5 (Huh?)
So far, this is as far as this idea has gotten. The governments of the United Kingdom and Canada are currently considering Internet tax proposals.
An energy tax? In an interview with Charlie Rose on PBS last year, Volcker floated the notion of "a tax on carbon, tax on energy, that's a big revenue producer if you're willing to do it. Not very popular to say the least." It was part of a roster of potential tax code changes presented to the President in December, and he brought it up again in April in New York City.6,7
Citations.
1tulsaworld.com/news/article.aspxno=subj&articleid=20100327_222_A23_WSIGOm22953 [3/27/10]
2 bostonherald.com/business/general/view.bg?articleid=1245809&srvc=rss [4/9/10]
3cnn.com/2010/02/05/news/economy/vat_deficit.fortune/index.htmss [2/5/10]
4georgewbushwhitehouse.archives.gov/news/releases/2007/10/images/20071031-17_d-0350-2-515h.html [10/31/07]
5 washingtontimes.com/news/2010/apr/02/internet-taxation-is-on-the-way/ [4/2/10]
6 blogs.wsj.com/economics/2009/09/29/volcker-carbon-tax-vat-should-be-on-the-table/tab/article/ [9/29/09]
7 reuters.com/article/idUSTRE6355N520100406 [4/6/10]
Friday, April 2, 2010
UPDATE ON ISSUES REGARDING HEALTHCARE REFORM
Based on an article in Time magazine a lot of economists have said that it will be impossible to bring healthcare spending under control until everyone has medical insurance. The reason is because many of the uninsured wait until they're really sick and then go to an emergency room to obtain treatment which is extremely expensive.
Even though the congressional budget office has stated that health care reform should reduce costs there are more than a few people that dispute this. The real reason we have significant acceleration in healthcare costs is because of our wasteful inefficient payment system and very expensive approach to medical care. We need to be able to transform an industry that basically rewards volume. The only real way to control costs is to quit paying providers for every procedure they perform and base their pay on positive health outcomes for their patients. That can make a huge difference on reducing costs as has already been shown to work very effectively in the Mayo and Cleveland Clinics. They actually pay their healthcare practitioners salaries but pay them quarterly bonuses based on positive patient health outcomes rather than how many procedures have been performed for the patient. Another reform idea that is expected to bring costs down is the tax on the country's most expensive health insurance plans known as Cadillac plans. A lot of these plans basically have minuscule or virtually non-existent co-payments and out-of-pocket spending so there's no incentive for patients to seek cost effective care and it creates significant abuse of the healthcare system. There will be a tax on these plans so that will undoubtedly force employers and individuals to consider cheaper policies which should save money in the system overall.
Funding for a medical home concept will create a team based approach to deliver health care which will disperse responsibility for health care decisions across a broad range of providers and facilities, rather than just the physician. This concept is already being tested to manage chronic health conditions such as heart disease and diabetes and is focused on providing quality care, rather than the number of procedures performed.
The legislation allows private projects to explore various payment reforms that will be launched within Medicare to see how they work and if they're successful then they can be implemented across the nation. Medicare is in a position to be considered a testing ground for developing and implementing some of these new healthcare approaches that could create the most promise for the future. The new law also addresses wasteful subsidies that go to private insurers that contract with the federal government to provide Medicare-type benefits to seniors known as Medicare Advantage plans. Many times they require lower co-payments than traditional Medicare and provide extra benefits as well. These come at an extra cost and a lot of experts feel the government pays about 14 percent more for each Medicare advantage beneficiary than a traditional Medicare patient. These overpayments will gradually be phased out beginning in 2011. The Medicare advantage plans then will feel the pinch and will have to find a way to continue coverage without the government's subsidization anymore. Further cuts with Medicare will be made through what they call productivity adjustments where they shave small amounts off the annual growth and reimbursements to hospitals and other facilities.
The new law will set up an independent board to study clinical outcomes and evidence and come up with ways Medicare can reduce spending without sacrificing quality or access and they will pay actually bonuses to the Medicare advantage plans with the best clinical outcomes and highest patient ratings. Making this shift on a national level isn't going to be easy because many healthcare administrators acknowledge that as long as the fee for service reimbursement structure remains in place with private insurers doctors will be forced to practice two kinds of medicine: One in which they are reimbursed on the basis of volume of services they provide and another based on positive patient health outcomes and efficiency of their care.
Establishing health insurance exchanges on a state-by-state basis will allow people to shop around choosing from a selection of insurance policies much as the federal government employees do now including members of Congress. Some states will choose to operate these exchanges on their own while others might join up with their neighboring states in regional operations so there's a lot of talk about how this may play out over time. Over the longer term as more parts of the new legislation go into effect everyone will be watching closely to see whether the healthcare reform is working as intended.
Based on an article in Time magazine a lot of economists have said that it will be impossible to bring healthcare spending under control until everyone has medical insurance. The reason is because many of the uninsured wait until they're really sick and then go to an emergency room to obtain treatment which is extremely expensive.
Even though the congressional budget office has stated that health care reform should reduce costs there are more than a few people that dispute this. The real reason we have significant acceleration in healthcare costs is because of our wasteful inefficient payment system and very expensive approach to medical care. We need to be able to transform an industry that basically rewards volume. The only real way to control costs is to quit paying providers for every procedure they perform and base their pay on positive health outcomes for their patients. That can make a huge difference on reducing costs as has already been shown to work very effectively in the Mayo and Cleveland Clinics. They actually pay their healthcare practitioners salaries but pay them quarterly bonuses based on positive patient health outcomes rather than how many procedures have been performed for the patient. Another reform idea that is expected to bring costs down is the tax on the country's most expensive health insurance plans known as Cadillac plans. A lot of these plans basically have minuscule or virtually non-existent co-payments and out-of-pocket spending so there's no incentive for patients to seek cost effective care and it creates significant abuse of the healthcare system. There will be a tax on these plans so that will undoubtedly force employers and individuals to consider cheaper policies which should save money in the system overall.
Funding for a medical home concept will create a team based approach to deliver health care which will disperse responsibility for health care decisions across a broad range of providers and facilities, rather than just the physician. This concept is already being tested to manage chronic health conditions such as heart disease and diabetes and is focused on providing quality care, rather than the number of procedures performed.
The legislation allows private projects to explore various payment reforms that will be launched within Medicare to see how they work and if they're successful then they can be implemented across the nation. Medicare is in a position to be considered a testing ground for developing and implementing some of these new healthcare approaches that could create the most promise for the future. The new law also addresses wasteful subsidies that go to private insurers that contract with the federal government to provide Medicare-type benefits to seniors known as Medicare Advantage plans. Many times they require lower co-payments than traditional Medicare and provide extra benefits as well. These come at an extra cost and a lot of experts feel the government pays about 14 percent more for each Medicare advantage beneficiary than a traditional Medicare patient. These overpayments will gradually be phased out beginning in 2011. The Medicare advantage plans then will feel the pinch and will have to find a way to continue coverage without the government's subsidization anymore. Further cuts with Medicare will be made through what they call productivity adjustments where they shave small amounts off the annual growth and reimbursements to hospitals and other facilities.
The new law will set up an independent board to study clinical outcomes and evidence and come up with ways Medicare can reduce spending without sacrificing quality or access and they will pay actually bonuses to the Medicare advantage plans with the best clinical outcomes and highest patient ratings. Making this shift on a national level isn't going to be easy because many healthcare administrators acknowledge that as long as the fee for service reimbursement structure remains in place with private insurers doctors will be forced to practice two kinds of medicine: One in which they are reimbursed on the basis of volume of services they provide and another based on positive patient health outcomes and efficiency of their care.
Establishing health insurance exchanges on a state-by-state basis will allow people to shop around choosing from a selection of insurance policies much as the federal government employees do now including members of Congress. Some states will choose to operate these exchanges on their own while others might join up with their neighboring states in regional operations so there's a lot of talk about how this may play out over time. Over the longer term as more parts of the new legislation go into effect everyone will be watching closely to see whether the healthcare reform is working as intended.
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