Krauthammer: Obamacare’s next trick: The value-added tax

By Charles Krauthammer

As the night follows the day, the value-added tax, or VAT, follows health care reform.

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

We are now

$8 trillion in debt. The Congressional Budget Office projects that $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 10-6 sleight-of-hand (counting 10 years of revenue and only six years of outflows) - is at minimum a $2 trillion new entitlement.

It will vastly increase the debt. But even if it were revenue-neutral, Obamacare pre-empts and appropriates for itself the best and easiest means of reducing the existing deficit. Obamacare's $500 billion of cuts in Medicare and $600 billion in tax increases 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 Barack Obama 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.

The bill enacted on Tuesday accelerates the spiral: It radically expands Medicaid (adding

15 million recipients/dependents) and shamelessly raids Medicare by spending on a new entitlement the $500 billion in cuts and the yield from the Medicare tax increases.

Obama knows that the debt bomb is looming, that Moody's is warning that the Treasury's AAA rating is in jeopardy, 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? 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 locked in place by the new Obamacare mandates.

That's where the value-added tax comes in. 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).

It's the ultimate cash cow. Obama will need it. By introducing universal health care, he has pulled off the largest expansion of the welfare state in four decades. And the most expensive. Which is why all of the European Union has the VAT. Huge VATs. Germany: 19 percent. France and Italy: 20 percent. Most of Scandinavia: 25 percent.

Liberals have long complained that Reagan's strategy was to starve the (governmental) beast in order to shrink it: First, cut taxes - then ultimately you have to reduce government spending.

Obama's strategy is exactly the opposite: Expand the beast and then feed it. Spend first - which then forces taxation. And the VAT is the only trough in creation large enough to feed this beast.

As a substitute for the income tax, the VAT would be a splendid idea. Taxing consumption makes infinitely more sense than taxing work. But to feed the liberal social-democratic project, the VAT must be added on top of the income tax.

Ultimately, even that won't be enough. As the population ages and health care becomes increasingly expensive, the only way to avoid fiscal ruin (as Britain, for example, has discovered) is health-care rationing.

It will take a while to break the American populace to that idea. In the meantime, get ready for the VAT. Or start fighting it.

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