Obamas health care overhaul Yet Congress has been more successful promising

Obamas health care overhaul yet congress has been

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including programs like Social Security, Medicare, Medicaid and, most recently, the insurance subsidies in Mr. Obama's  health care overhaul. Yet Congress has been more successful promising benefits than finding the revenue to pay for them. A  VAT could solve that problem. Yet liberals balk at the distributional impact of a VAT. The tax has the same effect on rich and poor, as gauged by a  proportion of their spending. But because high-income households save a higher fraction of their income, they will pay a  lower fraction of their income. Whether this distribution of the tax burden is fair is open to debate. (What is indisputable is that adding it without  subtracting something else would violate Mr. Obama's campaign pledge not to raise taxes on families making less than  $250,000 a year.) Conservatives emphasize an altogether different set of concerns. For them, the main disadvantage of a VAT is that it would 
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be a source of revenue to fund a large, intrusive government. Western Europe is a case in point. Many nations there have large governments financed in part by value-added taxes.  Europeans also typically work less than Americans and, as a result, have lower income per person. While sorting out cause- and-effect among these international differences is hard, many conservatives agree with Edward C. Prescott, a Nobel  laureate in economics whose research suggests that Europe's lower income is largely attributable to its higher tax rates. On the other hand, conservatives have long argued that the American tax system is grossly inefficient and impedes the  economy's ability to reach its full potential. They contend that taxing consumption is better than taxing income, and a  value-added tax does exactly that. Moreover, a VAT is the twin of the flat tax that conservatives sometimes advocate. To see why, imagine that we started with  a VAT. Then we add a wrinkle: We allow businesses to deduct wages, in addition to the cost of goods and services. We also  require households to pay a tax on their wage income. Other than shifting the responsibility for the tax on wages from the business to the household, it might seem that we  haven't done anything significant. Indeed, we haven't. But the new tax system would no longer be a VAT. It would be the  flat tax that Robert E. Hall and Alvin Rabushka first proposed back in 1981. So why, if these two tax systems are really the same, are conservatives attracted to the flat tax and repelled by the VAT? It is  because the flat tax is usually proposed as a substitute for our current tax system, whereas the VAT is often suggested as an  addition to it.
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