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The VAT Cometh
This massive new entitlement needs a cash cow.


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Charles Krauthammer

As the night follows the day, the VAT cometh.

With the passage of Obamacare, which created a vast new middle-class entitlement, a national sales tax of the kind almost universal in Europe is inevitable.

We are now $8 trillion in debt. The Congressional Budget Office projects that another $12 trillion will be added over the next decade. Obamacare, when stripped of its budgetary gimmicks — the unfunded $200 billion­–plus doctor fix, the double-counting of Medicare cuts, the ten-six sleight-of-hand (counting ten years of revenue and only six years of outflows) — is, at minimum, a $2 trillion new entitlement.

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It will vastly increase the debt. But even if it were deficit-neutral, Obamacare would still pre-empt and appropriate for itself the best and easiest means of reducing the existing deficit. Obamacare’s $500 billion of Medicare cuts and $600 billion in tax hikes are no longer available for deficit reduction. They are siphoned off for the new entitlement of insuring the uninsured.

This is fiscally disastrous because, as President Obama himself explained last year in unveiling his grand transformational policies, our unsustainable fiscal path requires control of entitlement spending, the most ruinous of which is out-of-control health-care costs.

Obamacare was sold on the premise that, as Nancy Pelosi put it, “Health-care reform is entitlement reform. Our budget cannot take this upward spiral of cost.” But the bill enacted on Tuesday accelerates the spiral: It radically expands Medicaid (adding 15 million new recipients/dependents) and shamelessly raids Medicare by spending the $500 billion in cuts and the yield from the Medicare tax hikes on a new entitlement.

Obama knows that the debt bomb is looming, that Moody’s has warned that the Treasury’s AAA rating is in jeopardy, and that we are headed for a run on the dollar and/or hyperinflation if nothing is done.

Hence his deficit-reduction commission. It will report (surprise!) after the November elections.

What will it recommend? What can it recommend? Sure, Social Security can be trimmed by raising the retirement age, introducing means testing, and changing the indexing formula from wage growth to price inflation.

But this won’t be nearly enough. As Obama has repeatedly insisted, the real money is in health-care costs — which are now locked in place by the new Obamacare mandates.

That’s where the value-added tax comes in. For the politician, it has the virtue of expediency: People are used to sales taxes, and this one produces a river of revenue. Every 1 percent of VAT would yield up to $1 trillion a decade (depending on what you exclude — if you exempt food, for example, the yield would be more like $900 billion).



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