Brookings’ Sawhill Favors Healthcare VAT, 03/02/11

In answer to a question posed by VATinfo during a webcast, today (“The Federal Budget and Prospects for a Government Shutdown”), Isabel Sawhill endorsed the idea of a VAT to fund healthcare benefits.

Steve Abramson: You have previously commented that the budget deficit cannot be closed by cuts a[...]lone and that a VAT would be the least-worst method of raising tax revenues. How would you feel about initially introducing a VAT as a revenue-neutral replacement for the CIT and payroll taxes? Do you think that would have a stimulative effect by making exports cheaper and making imports shoulder an equal tax burden? Alternatively, what do you think of using a dedicated VAT to pay for health care vouchers to be used in an exchange, such as recommended by Dr. Ezekiel Emanuel?

Isabel Sawhill: Yes, I like a VAT and I think the key word in your question is “initially.” We need more revenue so revenue-neutrality might be O.K. in the first year or two while the economy was still recovering but we need a tax that will grow revenues over time. I am not wild about the idea of it’s replacing payroll and CIT taxes but I love the idea of dedicating it to health care expenditures. This would make clear to the public how much health care costs and the need to rein in those costs unless we are willing to pay much higher taxes.