Across the Curve

Into the VAT

Romer Says Value-Added Tax Might Ease Budget Deficit (Update1)
2009-10-26 19:06:22.606 GMT

(Adds Romer comments starting in fifth paragraph.)

By Edwin Chen
Oct. 26 (Bloomberg) — The U.S. should consider a value-
added tax as one way to help reduce the federal budget deficit,
Christina Romer, chairman of the White House Council of Economic
Advisers, said today.
“It is something that, when we’ve recovered, absolutely we
have to think about” because federal deficits are “a really
big problem, and it’s going to take lots of solutions,” Romer
said in response to a question after a speech on the economy and
health care at the Center for American Progress, a Washington
research group with close ties to the White House.
“Nobody’s talking about anything” now, Romer said of a
value-added tax. “We’ve got to get through this recession.”
The White House Office of Management and Budget and the
Treasury Department said Oct. 16 that the final estimate of the
fiscal year 2009 deficit widened to a record $1.4 trillion. That
would be about 10 percent of gross domestic product.
While Romer said comprehensive health-care overhaul is a
critical component of the deficit-fighting strategy, she said
other measures, including a consumption tax, must be considered.
“There’s no way we can get out of this if we don’t slow
the growth rate of health-care costs,” Romer said when asked
about a value-added tax, an idea that’s been touted by Center
for American Progress President John Podesta, who was co-
chairman of President Barack Obama’s transition and remains an
adviser.

More Needed

“But it is surely going to take more,” Romer added. “And
we’ve heard proposals for VATs. We’ve heard proposals for
commissions. We’ve heard proposals for dealing with Social
Security. Those are all things that I think are going to have to
be thought about as we go forward.”
In her half-hour speech, Romer focused largely on making a
case for health-care overhaul, Obama’s top domestic initiative.
“To bury our head in the sand for even one more year and
pretend that the problem of rising government health care
expenditures will go away is simply untenable,” she said.
“We’re on a collision course with reality.”
“Some have argued that it is irresponsible to reform our
health-care system at a time when the budget deficit is so large
and our long-run fiscal problems are so severe,” Romer said.
“I firmly believe the opposite: It is fiscally irresponsible
not to do health-care reform.”

Sweeping Changes

Obama is urging lawmakers to enact the most sweeping
health-care changes since the creation of Medicare in 1965.
Legislation in the House and Senate would cost more than
$800 billion over 10 years, require all Americans to get
insurance, and create online purchasing exchanges and subsidies
to help lower-income Americans afford coverage.
Three House committees and two Senate panels have approved
different versions of legislation, forcing Democratic
congressional leaders to combine the bills. Each chamber then
must debate and vote and then agree on a compromise version for
a new round of voting.
In her remarks, Romer made the case for a presidential
initiative: the creation of a public option that allows the
uninsured to band together and purchase coverage, many with
government subsidies.
“A public health insurance option would be a credible
entrant in concentrated markets, and would serve as a
competitive, alternative choice, constraining the ability of
insurers to raise premiums, and thus containing the growth rate
of costs,” Romer said.
She declined to answer a question about the president’s
views on the creation of a public option that allows states to
opt out, an approach that is gaining support among Senate
Democrats.