James Pethokoukis

Scat VAT! Rasmussen reports that while Democrats would go for a national sales tax to pay for universal healthcare, no so the rest of the country:

Democrats strongly support a national sales tax to provide universal health insurance coverage. Republicans are opposed by a three-to-one margin, and those not affiliated with either major party are opposed two-to-one.

Healthcare reform is gaining momentum. (“If we don’t get it done this year, we’re not going to get it done,” Obama said yesterday.) Ted Kennedy’s bill is beginning to be unwrapped, says the WaPo:

In many respects it adopts the most liberal approaches to health reform being discussed in Washington. Kennedy, for example, embraces a proposal to create a government-sponsored insurance program to compete directly with existing private insurance plans, according to one senior adviser who was not authorized to talk to reporters. The draft summary also calls for opening Medicaid to those whose incomes are 500 percent of the federal poverty level, or $110,250 a year for a family of four.

Back in January when Team Obama was pushing its stimulus plan, the White House put out a self-analysis of the potential economic impact of the plan, authored by Jared Bernstein and Christina Romer.  If Congress passed the president’s plan, the report said, the U.S. unemployment rate would rise to just under 8 percent by later this year and fall to 7 percent by Q4 2010. If the plan was not passed, the reported predicted, the U.S. unemployment rate would climb to 9 percent next year.

Time for a reality check. Unemployment is already at 8.9 percent The consenus private sector estimate is that unemployment will average 9.7 percent next year. Douglas Elmendorf, head of the Congressional Budget Office, says unemployment will peak at 10.5 percent next year.  One conclusion is that we need another mega-stimulus package. An alternatve conclusion would be that the first one isn’t working and it’s time for Plan B.

Nouriel Roubini paints a gloomy picture of the economy ahead:

“I still expect that economic growth in the U.S. is going to be negative through Q4, and that we’ll see positive growth in Q1,” Roubini told Reuters in an interview on the sidelines of the Seoul Digital Forum.

“The U.S. recession is going to be U-shaped, lasting roughly 24 months,” he added. “Compared to the current consensus that says we are practically at the end of the recession … my view is: no, it’s going to last another six to nine months before it’s over.”

Bob Williams over at the Tax Policy Center takes note of recent research that suggests “taxes don’t always have to depress demand. People may not react to tax changes they don’t perceive. If the price change isn’t obvious, homo economicus goes on merrily consuming the same as before.”

He points to research that found a) toll roads with electronic toll payment systems take in more revenue; and  b) a drop in demand when sales taxes were made clear to consumers before purchase.  Now one could interpret this as an argument for a value-added tax. In general, I think it makes a lot of sense to tax consumption over investment. But the interest in Washington is in a VAT that would be in addition, more or less, to our current income and investment taxes — not a replacement.

Larry Kudlow had a marvelous chat with the former veep yesterday. I think this exchange on GM is particuarly noteworthy:

Mr. CHENEY: Well, some of us at the time wanted GM to go bankrupt, go to Chapter 11.

KUDLOW: Were you in that camp?

Mr. CHENEY: I was. The decision was made that, in the final analysis, since our administration was almost over and a brand-new team was about to take over that the president wanted, in effect, not to take a step that wasn’t necessarily going to be followed by his successor, but rather to set up a situation which the new guys could address that issue and make a decision about what the long-term policy was going to be. And we came up with a short-term package, in effect, that got us through the–through the inauguration.

My pal Pete Davis over at Capital Gains and Games gives a  great 96-word GM sitrep:

This is not going to come to a happy end for taxpayers for several reasons.  First, the taxpayers will not get back all of $19.4 b. they’ve already “invested” in GM, nor all of $30 b. in loans they’re about to be saddled with.  Second, auto parts firms will soon need additional funds as well.  Third, the collateral damage to Ford and other companies making cars in the U.S. will not be small.  Finally, despite Administration assurances that they will be “reluctant owners,” eager to sell, it will take a long time to extricate ourselves from this mess.

I wrote a Reuters column yesterday about the GOP alternative to Obamacare just offered by Sens. Coburn and Burr and Reps. Ryan and Nunes. Read the column. Study it. Memorize it. But here are a few observations:

1) CBRN would go a long way toward moving the U.S. healthcare system from being employer based to individual based. If you a want to create a consumer-driven healthcare market, that’s a biggie.

2) It shows that GOPers realize that a 1994-style, “just say no” strategy won’t be enough to defeat Obamacrat healthcare reform.

3) The language surrounding the GOP bill does make it almost sound like it is a Democrat bill. That could confuse the public into thinking there are no real differences between the GOP plan and the Obama plan (which seems likely to create a public health plan option), helping the legislative momentum of the latter.

On a side note, here a story about problems with the Mitt Romney-designed Massachusetts healthcare system.

My Reuters Commentary pal and fellow snappy dresser Felix Salmon wonders how noted Stanford economist John Taylor can be worried about big budget deficits and also be in favor of low taxes: “Or maybe deficits caused by permanent tax cuts are somehow to be preferred to deficits caused by temporary stimulus spending”

Me: Yes, they are! The deficits would likely be smaller since the tax cuts are more likely to generate stronger — certainly more sustainable — economic growth, as Taylor explains.

The WaPo discovers that a value-added tax would be one way to pay for Obama’s healthcare reform plan. (White House healthcare adviser Ezekiel Emanuel is a big VAT fan and even wrote a book about it.)   Len Burman of the Tax Policy Center describes a VAT this way (in a different report):

A VAT is a tax on consumption, similar to sales taxes levied by states, except that it is collected in stages from each business that contributes to the production and sale of consumer goods. It is universal in the rest of the industrialized world and generally thought to be relatively easy to administer and for businesses to comply with.

Burman, quoted in the article, thinks a 25 percent VAT could plug the government’s budget hole, while one of 10-15 percent could pay for healthcare reform, the story also notes. Burman adds that one of the complaints “leveled at the VAT is that it would be a money machine and fuel the growth of government.” To a great degree, a VAT would be hidden tax since it would incorporated into what we buy.

Also consider this: These estimate of how expensive Obamacare might be could be way low. Indeed, the Urban Institute speculated that the ten-year cost might be close to $2 trillion rather than $1 trillion. That VAT might need to be way higher, gang. Either way, somebody in that 95 percent of us who are supposed to get a tax cut would be paying higher taxes.