James Pethokoukis

The oh-so-smart Andrew Samwick on the chances of a VAT over at the Capital Gains and Games blog:

James Pethokoukis is on the case, putting together the pieces of a “yes.”  My prediction: regardless of how urgent the need for revenue may be, taxes on the highest earners would have to go up dramatically before a VAT of any size would be passed.  Failing that, the Left’s history of the first two decades of the 21st century would be that taxes on the wealthy were lowered and 2001 and 2003 and then raised on the middle class in 201x.  The Left is already smarting from what it perceives (correctly, I might add) as a similar thing that happened in the 1980s, when income tax rates were lowered while payroll taxes were increased.  They won’t go in for this again unless a very large income tax increase on the highest earners is part of the bargain.

Me: This is another example of why I feel we need major tax reform rather than trying to glom something else onto the current system. But the politics are amazingly tricky, which is another reason why I don’t see why cutting spending is necessarily more difficult than raising taxes, politically speaking.

Some wise words from economist Andrew Samwick over at Capital Gains and Games:

1) The scenario I envision is that the public option does nothing to control costs.  Its payment system is set up to resemble Medicare, and it is the growth in real, age-adjusted Medicare expenditures per capita that has most people concerned about long-term deficits.  But with a public option, there will now be recourse for every citizen to petition the government to get a better deal on its health insurance premiums.  The pressure will be enormous to subsidize the public option, just as there has been enormous pressure to offer services in Medicare that increase its cost at (future) taxpayer expense.

2) There is no way to keep politics out of the operation of an entitlement program as complicated as Medicare.  Legislators simply cannot help themselves.  Staying with the follies of former Senator Stevens to whom Stan referred in his post, recall what he did for Medicare payments in Alaska on his way out the door.  I have argued that the government does have an important role to play in the regulation of health insurance markets (Community rating, Guaranteed issue, Ex post risk adjustment, and an individual mandate, with Medicaid for a fee as the backup option).  To the extent possible, it should stay out of the business of delivering health care.  Markets should determine the allocation of goods and services, not legislators and bureaucrats.