The Healthcare Bandwagon

THE HEALTHCARE BANDWAGON....Over the past year or so a fair number of corporate executives have joined the bandwagon for national healthcare. Now a new business group is adding its voice:

The leading small-business organization, a lobbying juggernaut that helped kill President Clinton's health plan in the 1990s, plans to announce today that it is signing up with a diverse political coalition promoting access to affordable healthcare for all.

The National Federation of Independent Business will join AARP, the Service Employees International Union and the Business Roundtable — which represents chief executives of major companies — in an umbrella group called Divided We Fail. The effort is aimed at ensuring that healthcare and retirement security are at the top of the presidential candidates' domestic agendas next year.

The strange bedfellows are trying to forestall the kind of political polarization that doomed Clinton's healthcare plan, as well as President Bush's effort to overhaul Social Security.

But as near as I can tell, their only really deep concern is and always has been making sure that small businesses aren't singled out to pay directly for national healthcare. Take that off the table and they're probably pretty malleable on the rest of the details. This is one of the reasons I support a national Value Added Tax as the funding source for a genuine universal plan. In practice, a VAT acts a lot like a sales tax that's collected at each stage of production, and as a healthcare funding source it has the advantage of being both large and stable. Here's a quick rundown of its other benefits:

1. There's no pay-or-play mandate (i.e., either provide healthcare or pay a special tax). Businesses hate this, and small businesses really it, since they're the ones who usually have to pay. Conversely, a VAT is simple and universal, treating everyone equally.
2. Very small businesseses are usually excluded from a VAT, so tiny startups and one-man shows don't have to worry about it.
3. Economically, it's pretty efficient. Compared to other taxes, the deadweight loss is pretty small.
4. It's a universal tax, not just a tax on the rich. As FDR recognized, people don't want charity. They want to feel like they're getting something they've paid for. A VAT can be structured so the rich pay more (see below), but everyone pays something.
5. Most VATs exclude some items in order to keep the hit on the poor low. If you exclude food and housing from the VAT, for example, a VAT is relatively progressive. (Not as much as a progressive income tax, but not too bad either.)
6. If you take a look at the relative benefits paid out, it looks even more progressive. If you have an income of $25,000 for example, but exclude food and housing worth $15,000, a 10% VAT ends us costing you about $1,000 per year. If you make $500,000 and exclude $250,000 (food and housing plus money you don't spend on consumption), you end up paying about $25,000.

   But both families end up receiving identical healthcare benefits, worth roughly $12,000 for a family of four. So the first family has a net benefit of +$11,000 while the better off family has a net benefit of -$13,000. That's pretty progressive.
   

Would NFIB go for it? I don't know. But I'll bet a pretty good case could be made for accepting it. It's an option we ought to be considering a lot more seriously than we are.