By Tom Curry National affairs writer
updated 10/19/2009 11:08:35 AM ET 2009-10-19T15:08:35

Claim: A new value-added tax could efficiently help pay for expanding health insurance.

To help pay for expanded insurance coverage, Democrats are considering new revenue sources, such as a value-added tax. Under a VAT, each stage of the production and distribution of a product is taxed, with consumers paying the cumulative cost of the taxes. The VAT is common in European nations. House Speaker Nancy Pelosi floated the idea of imposing a VAT to help pay for expanding insurance. "Somewhere along the way, a value-added tax plays into this," she said in an Oct. 5 interview. "We want to take down the health care cost…. But in the scheme of things, I think it’s fair look at a value-added tax as well."

Fact or fiction?
Fact. What VAT has going for it: It is harder to evade than the income tax, is hidden in the cost of goods and services, and would be broad-based with virtually every consumer in the United States paying it. It would tax people earning less than $250,000, which President Barack Obama has pledged not to do, but low-income people could get rebates to help cushion the impact. "Economists agree that that is a way to raise revenues very efficiently," said Rudolph Penner, former director of the Congressional Budget Office. It has also won support from John Podesta, co-chairman of Obama’s transition team and White House chief of staff under Bill Clinton, and Paul Volcker, occasional advisor to Obama and former Federal Reserve chairman.

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