VATinfo

Funding Medicare For All with Tax Reform

August 19, 2017 by VATinfo

An unprecedented lobbying effort led up to the failure to repeal and replace the Affordable Care Act. Insurance companies and Big Pharma spent heavily to protect their interests.

As reported in “Modern Healthcare,” 04/21/17, government lobbying disclosures revealed the five largest publicly traded insurance companies spent over $6 million total on lobbyists in first quarter 2017. To be clear, this effort was not to find a way to protect the public interest. Among other provisions to the Affordable Care Act, insurers sought to eliminate the annual tax on health insurance companies that funds ACA subsidies for low-income enrollees.

The insurance industry’s lobbying wave in the first quarter was dwarfed by the tsunami of the pharmaceutical industry. According to “Kaiser Health News,” 04/21/17, 38 drug manufacturers and trade organizations spent $51 million in first quarter 2017, a 25% increase over first quarter 2016. Big Pharma used 600 lobbyists in all. At stake are lower prices and increased competition.

America’s dependence on private insurance companies results in a large unproductive expense. While the administrative cost of Medicare is only 3%, private insurance companies have administrative expenses of 30%. Eliminating that unrewarding difference would go a long way towards covering more of the population at less cost. With fully 16% of the economy involved in healthcare, some regulation will be needed to curb abusive pricing practices and to put the breaks on runaway costs. Insurance companies and pharmaceutical manufacturers will spend heavily to sway Congress otherwise.

There are, of course, other crushing expenses of healthcare: preposterously high malpractice policy premiums that protect doctors and hospitals against unlimited “pain and suffering” judgments; the drag on hospitals created by ER’s which are open to the uninsured.

Citizens must pressure Congress to act for the common good. More funding will surely be needed, and the public needs to decide whether it is willing to pay for all the benefits wanted. Ultimately, it comes down to how — and how much — we would pay for healthcare. The public must make it possible for politicians to do the right thing.

As we have already experienced with the ACA, young people tend to postpone insurance expense, betting on their youthful vigor. And, many ultra-wealthy taxpayers would surely forego a contribution and tax deduction rather than support illegal aliens.

The secure approach would employ tax reform in a plan that would curtail lobbying for loopholes while it funded basic insurance for the nation — Medicare For All (MFA). Medicare works (3% administrative expense), and it is well liked. The Gallup Organization polled insured Americans for satisfaction with their health insurance, and the winner is Medicare (75%), well above employer paid insurance (66%).

The country could move to MFA and leave private insurers to compete for supplemental policies, much as they do now. According to Pew Research (01/13/17), 60% say the federal government should ensure healthcare for all Americans.

Paying for MFA could be accomplished with a dedicated sales tax replacing the Corporate Income Tax. The public would understand exactly what it is paying for healthcare, noting the percentage tax on all consumed goods and services. If this percent reaches a ceiling of acceptance, the public will come to understand the need to curtail covered expenses.

The ideal form of the sales tax would be a value added tax, since it would be applied equally to imported goods as to domestic production and would eliminate a competitive disadvantage for American companies and workers. (VAT would also be subtracted from exports making US goods more competitive abroad. VAT’s are already in use by every US trading partner, so this would be a reciprocal tax policy. VAT differs from a retail sales tax in that it is collected at each stage of production; the percentage and tax is the same.)

Implementing a VAT sales tax across the board without exceptions would assure the broadest base and the lowest needed percentage. Any one exception would produce a clamor from lobbyists for various clients’ desired tax loopholes, ergo no exceptions means no lobbying for loopholes and “draining the swamp”.

The VAT sales tax would collect from the illicit drug trade and from illegal aliens, too; those individuals would pay substantial taxes as they consume goods and services. Unlike the income tax, the VAT will affect them equally. The consumption tax would apply to hundreds of billions of dollars of transactions per year and would reduce the percentage tax for the rest of us.

The consumption tax burden for the lowest incomes would be relieved through the Earned Income Tax Credit, and funded by a more progressive tax code that affects the uppermost income segments. Note, it is consumers who (indirectly) pay the current corporate income tax when their purchases make corporations profitable. Also, when considering the burden of the corporate consumption tax, it is important to remember it would replace the cost of basic health insurance premiums.

The concept of a border-adjustable tax had been a keystone of the Republican tax reform plan (see the Trump campaign’s economic white paper written by Secretary of Commerce Wilbur Ross and economist Peter Navarro), but it was recently dropped from consideration due to lobbying pressure from the retail industry and importers. It would be smart for Democrats to seize the concept as their own (much as Gov. Jerry Brown did in 1992 when he ran for president). The idea of a VAT replacing other taxes has more recently been endorsed by President Clinton to level the playing field for American workers.

This healthcare solution is what we could have…if we could only break the stranglehold of corporate lobbyists on the Congress.

Filed Under: Blog Tagged With: healthcare, Medicare For All, tax reform, value added tax, VAT

“Taxing Imports, Not Exports,” Steve Lohr, NYTimes, 12/13/16

December 13, 2016 by VATinfo

“President-elect Donald J. Trump has vowed to protect and create American manufacturing jobs, even threatening high tariffs on imports to help achieve that goal. So far, though, his plan seems to lean heavily on one-at-a-time deals, like the one struck late last month to save jobs at the Carrier plant in Indianapolis.

But proponents of a more far-reaching approach say it could achieve many of Mr. Trump’s goals without tariff walls or presidential jawboning: a sweeping overhaul of the corporate tax system that embraces a concept endorsed by House Republican leaders in their blueprint for tax reform, announced in late June.

“It would be the biggest change in business tax law ever in the United States,” said Martin A. Sullivan, the chief economist at Tax Analysts, a nonprofit tax research organization and publisher. “It might actually work, and I don’t think it’s a partisan issue.”

A central idea is that goods would be taxed based on where they were consumed rather than where they were produced, meaning that imports would be taxed by Washington while exports would not. Tax experts call this a destination-based consumption tax.

This would be a sharp departure for the United States in a number of ways, but taxing imports but not exports is in step with nearly all of America’s trading partners, which have so-called value-added taxes. The import-and-export tax treatment is known as border adjustment.”

Filed Under: Featured Article Tagged With: consumption tax, destination tax, tax reform, trade, Trump

Getting to “Majority Wins”

November 10, 2016 by VATinfo

Do you believe that “the majority wins”? Most of us do. But so often in our elections the winner is decided by a plurality, not a majority. Why? Third party candidates can siphon off enough votes in tight elections so that winners are deprived of clear (majority) victories.

In the 2016 presidential race, the results in four decisive battleground states were potentially affected by the votes for minor party candidates:

In Florida, Donald Trump defeated Hillary Clinton 49% to 48%; Gary Johnson received 2%; Jill Stein had 0.7%; two other candidates totaled 0.3%.
In Pennsylvania, Trump won 49% to Clinton’s 48%; Johnson had 2%; Stein had 0.9%; one other had 0.4%.
In Michigan, Trump received 48% to Clinton’s 47%; Johnson garnered 4%; Jill Stein had 1%; two others captured 0.5%.
In Wisconsin, Trump won 48% to Clinton’s 47%; Johnson had 4%; Stein had 1.0%; three others received 0.7%.

We can only speculate as to which candidate would have won if, in a runoff election, the minor party voters had a chance to vote for their second choice candidate. But, Maine voters in this election passed a referendum that going forward the state will employ Ranked Choice Voting (RCV) to result in an instant runoff and a winner always decided by majority preference (Instant Runoff Voting, or IRV). In the event no candidate wins an outright majority, the second choice of the third place (and lower) finishers are added to the remaining candidates. This process can be done sequentially, eliminating the lowest vote-getter first, and continuing, to arrive at a majority winner.

In the above four battleground states, if all Jill Stein’s votes and half of Gary Johnson’s votes had gone to Hillary Clinton, she would have won those four states. (Clinton did win the plurality national vote: 47.7% to Trump’s 47.5%; Johnson received 3.2%; Stein received 1.0%; other candidates received 0.6%.)

This is not a partisan issue! In the election of 1992, Bill Clinton won the presidency with 43.0% of the national vote to President George Bush’s 37.5%. In that year, the major third party candidate, Ross Perot, received 18.9% of the popular vote. In every state the winner had received less than 50% of the vote, and were there a runoff election (instant or traditional) in each state, the second choice of Perot’s voters in each state would have decided each state’s majority winner.

Arriving at a majority winner by RCV/IRV would have additional significance. There is a psychological mandate for the winner who captures a majority. Also, during the campaign..especially in primaries with several candidates..there is a greater likelihood that candidates will not insult each other because winning may ultimately depend upon the runoff votes of the other candidates’ supporters.

RCV/IRV is openly supported by Sen. John McCain, Sen. Bernie Sanders, and President Barack Obama, and is already used in Minneapolis, San Francisco, Burlington (VT) and five other cities. It has been used for years to decide national elections in Australia and Ireland and in London for Mayor. It is used in electing student leaders at over 50 American colleges and also is used to select Oscar nominees for best picture. New York City’s Comptroller Scott Stringer has called for RCV/IRV to be used to avoid costly runoff elections; in NYC, a runoff election can cost the city upwards of $13 million to administrate.

Maine having passed the RCV/IRV referendum will accelerate the movement towards majority wins. About time.

Filed Under: Blog Tagged With: Clinton Trump election, IRV, Maine referendum, majority rule, RCV

Trump Wants to Exempt US from Mexico’s VAT? The Real Antidote Is a VAT of Our Own.

October 1, 2016 by VATinfo

For the first time in seven presidential election cycles, Value Added Tax has entered the arena of a presidential campaign. Not since Gov. Jerry Brown focused his 1992 presidential campaign on sweeping tax reform including a VAT had a would-be president boldly suggested a VAT. In this cycle, both Sen. Ted Cruz and Sen. Rand Paul brought forward tax plans with value-added consumption taxes.

During the first debate with Hillary Clinton, Donald Trump pointed to the trade advantage of Mexico’s 16% VAT, which is subtracted from exports. Mr. Trump suggested he would negotiate an exemption for the US from Mexico’s VAT.

A more realistic solution to the existing price wedge of the VAT between the US and Mexico — and over 160 countries using VAT’s — would be for the US to adopt a VAT of its own in replacement for other taxes, i.e., the Corporate Income Tax (CIT).

Why does every US trading partner employ a VAT? Because it eliminates the cost of government represented by the tax from the price/value relationship of goods crossing borders. VAT is added to imports (to match the domestic VAT percentage), and subtracted from exports to permit the importing country to add its own VAT without doubling up on the exporting country’s tax. That is, VAT is a border-adjustable, destination based tax perfectly suited to this era of globalization.

The usual argument made against the US using a VAT is that it would be used to raise tax revenues to fuel social programs and put the country on a path to socialism. Opponents allude to the high percentage of tax revenues raised by VAT’s in France and Scandinavian countries. But, there is nothing that prevents a VAT from being used as a revenue-neutral replacement for other taxes, or for that matter, within an overall revenue cut. Fear of VAT extends mostly from the notion of using VAT as an “add-on” tax base which it need not be.

Nor is there any justification to assume that the revenues raised by a US VAT would increase as a matter of course. Among the major US trading partners within the 35 OECD members, the percentage VAT revenue to GDP did not explode over the fifteen years from 2000 to 2014 (the last year reported):

VAT Revenue % GDP	2000	2111	2014	VAT % Total Tax Revenue	2000	2011	2014
France	7.4	7.0	6.9		16.7	19.7	15.4
Italy	6.5	6.2	6.0		15.4	14.4	13.8
Germany	6.9	7.3	7.0		18.4	19.4	19.3
Japan	2.4	2.7	3.7		14.4	14.4	13.8
Spain	6.1	5.3	6.0		16.6	12.6	16.6
United Kingdom	6.6	7.4	6.9		18.1	20.5	21.2

Canada	3.2	4.1	4.1			9.2	13.3	13.1
Mexico	3.1	3.7	3.9			18.7	19.0	n/a

Source: OECD Consumption Tax Trends, 2014

The meaningful trend among our trading partners is to increase revenues from the consumption tax while reducing CIT revenues. Japan, for example, raised its VAT rate from 5% in 2013 to 8%, and has planned to raise it to 10% in 2017. Concurrently, however, Japan reduced the CIT rate from 39.5% to 32.11% in 2013 and will drop its rate further to 29.74% in its 2016 fiscal year.

If the US were to replace the CIT by a VAT, it would put the US on a more competitive footing by eliminating a trade disadvantage. This change would be positive for economic growth. With zero corporate income tax, profits parked abroad by multi-national corporations would flow to the US. The incentive for inversions would disappear along with the corrupting process of lobbying for loopholes. Trump’s economic advisor, Peter Navarro, has a handle on the VAT concept. For a full explanation of the impact on US trade, VATinfo has posted a 9-minute video with an explanation and support of VAT from Bill Clinton.

Filed Under: Blog Tagged With: Clinton, Cruz, mexico, Paul, tax reform, Trump, value added tax, VAT

POTUS Campaign | “Free” Trade & VAT Tax Reform

April 27, 2016 by VATinfo

It is little wonder that middle-class workers are flocking to the speeches of Sen. Bernie Sanders and Donald Trump. Twenty-five years of “free” trade agreements have eroded the hope of millions of Americans for higher-wage manufacturing jobs, which have fallen by nearly one-third since 1990 accompanied by stagnant wages.

What policies might help to stop the bleeding? Mr. Trump sees tariffs, which could threaten world trade and cause economies to implode. Secretary Hillary Clinton and Sen. Sanders envision higher education as a ladder to higher paying employment, but that is a longer-term solution based upon speculation that those jobs can and will be created in sufficient numbers.

Most effective in the short-term would be a shift in the way we tax corporations to match our global competition. Changing to a Value Added Tax as a replacement for the Corporate Income Tax would go a long way towards making American workers more competitive. How? Because VATs are border-adjustable, i.e., subtracted from exports and added to imports to eliminate the cost of government from the price/value relationship of goods crossing borders. For example, China has a 17% VAT that is added to their imports, and 17% is subtracted from the price of their exports. That is a big difference, coming and going. Likewise, Germany has a 19% VAT that has enabled their higher-wage country to still be very competitive with higher wages.

Among the presidential candidates, the only remaining contender proposing this shift in how we tax ourselves is Sen. Cruz. Whether you like his other positions or not, this tax reform deserves your support. Sen. Paul has proposed a similar plan. This should not be a partisan issue. Gov. Jerry Brown ran for president in 1992 based upon the same tax reform. President Bill Clinton has endorsed the concept, and so have many labor leaders. Will Hillary Clinton…or Donald Trump?

It’s time we got smart about how we tax ourselves, if we want to compete in the world economy. It’s time for VAT.

Filed Under: Blog Tagged With: Cruz, tax reform, Trump, VAT

“Free” Trade & Tax Reform | Carrier’s Move to Mexico

March 20, 2016 by VATinfo

Here’s the good news for employees at the Carrier plant in Indianapolis — the next Carrier air conditioner they buy will be cheaper. The bad news is Carrier’s jobs are moving to Mexico, and the employees’ next jobs will likely pay them less. (See: “Carrier Workers See Costs, Not Benefits, of Global Trade,” The New York Times, March 20, 2016)

“This is strictly a business decision!,” CEO Robert McDonough told an assemblage of Carrier’s workers about the outsourcing plans that will cost them their jobs. This explanation was met with boos and curses. To help discarded employees, the company promised to pay for four years of additional education, but many older workers feel it is too late for them. Carrier wages averaged $20 or more per hour, and jobs at the adjacent Amazon warehouse average just over $15 per hour.

We can presume that Mr. McDonough, as most public company CEO’s, is under pressure from parent United Technologies management and stockholders to increase profits any way they can. And, with global competition, “You can blink and see your market position erode,” he said. In a subsequent address to a gathering of financial analysts Mr. McDonough went further: “We’ve shifted an abundant part of our manufacturing footprint to relatively lower cost countries, about two-thirds. Still, there’s some opportunity there.”

We can’t blame UT management for the outsourcing decision, which is a consequence of government policies and free trade agreements. But it is also important to note that corporations have pushed Congress for these trade agreements, which enable outsourcing in the search for higher profits. Then, too, there is no faster way for top management to increase the value of their stock options than to dramatically lower the cost of labor through outsourcing. The result is a deck stacked against the American worker, now in competition with cheaper wages in other countries.