To Tax or Not to Tax: That is the Question
PUBLISHED July 25, 2026
Federal healthcare expenditures continue to rise. According to the Congressional Budget Office, Uncle Sam will spend an additional $1.4 trillion on major health care programs by 2036. 1
Sadly, our current fragmented health care system is incapable of stopping the bleeding—but could a universal health care plan do any better?
I think so. Everybody will be singing from the same song sheet. We will be able to think strategically about how best to deliver quality care at affordable costs.
But first we need to establish a universal health care program—an All-American Care plan. To do that, we would need approximately $866 billion in annual financing (see previous blog). Of that amount, $573 billion would be to make up for lower spending requirements by households and businesses. The other $293 billion would be for projected increases in utilization when we first roll out our plan. That amounts to a 5.6 percent increase over the $5.3 trillion we now pay each year for medical coverage.2
History can guide us here. President Harry Truman faced a somewhat similar dilemma when it came to financing the Korean War. Truman was reluctant to borrow money for combat operations and transfer the burden of the war onto “our children.” Truman said, “The sensible and honest thing to do now is to tax ourselves enough, as we go along, to pay for the financial costs of defense out of our current income.”
Value-added Tax
That is a sentiment I think we can build on. From a budgeting standpoint, we need to ring-fence All-American Care from other government spending schemes and provide the plan with dedicated revenue streams—premium income from individuals, payroll taxes from employers, and something entirely new to the American people: a value-added tax (VAT).
The OECD describes a VAT as a “broad-based tax on final consumption by households collected—but not borne—by businesses through a staged process.”
My interpretation of what the OECD is saying is that a value-added tax is a tax on consumer goods and services collected in pieces as businesses add value to a product or service. It differs from a sales tax in that a sales tax is collected at the final point of sale, whereas a VAT is collected after a business in the supply chain adds value to the good or service (e.g., when a weaver makes cloth from yarn).
As an example, if there is a 10 percent sales tax, customers would pay the entire 10 percent tax when they purchase the good or service. If there is a VAT, the 10 percent tax is collected in increments from businesses along the different stages of the production process.
The United States is one of the few nations in the world to not have a VAT. In a way, that gives us an advantage because we can pick and choose from the various tax regimes out there and find a VAT scheme that best meets our nation’s needs.
One thing to know about a VAT is that countries have reduced rates on certain goods and services. For instance, France and Germany have reduced tax rates on foodstuffs while Spain and Portugal have a lower VAT rate for passenger transport services. The thinking behind these reduced rates is to make fruits and vegetables or subway rides (for example) more affordable for lower-income families.
The OECD discourages countries from reducing rates or exempting certain categories of household spending. For one, adding these provisions makes the entire VAT scheme more complex. Additionally, the more exemptions, the higher the tax must be in order to generate a desired amount of income.
For All-American Care, if people have difficulty making their monthly premium payments because of financial hardships, the government can provide monetary assistance. Doing so is more efficient than increasing the complexity of the VAT or raising the tax rate for everyone else.
VAT Rate
As for finding a nation that has a tax framework suitable for our purposes, New Zealand is an excellent choice. New Zealand’s goods and services tax employs a broad-based tax on all consumer goods and services and has few exemptions. Two notable exemptions, however, are renting an apartment and financial services. New Zealand has no VAT on either.
The question now is, What VAT rate would we need to come up with to get $866 billion? You can follow the math in the Author’s Calculation section, but essentially the United States would need to levy a 4.42 percent VAT if it wanted to collect that amount of money.3
The next question is, How would a 4.42 percent VAT affect the finances of an average working-class individual? Again, you can follow the math below, but an employee earning $54,444 a year would conservatively pay about $143 a month in VAT.3
Even with a VAT, Americans would still come out ahead financially with a Dutch-styled universal health care plan.
All-American Care U.S. Fragmented Care
- Monthly premium $179/month $625/month
- OOP expenses $76/month $5,304 annual deductible
- VAT $143/month $0
- Total $398/month $625/month + medical expenses
- up to the $5,304 deductible
Sales Tax
Unfortunately, our story does not end here. At this time, 45 states in the Union have a sales tax, and they may object to Washington asking its businesses to pay a federal VAT when they are already paying a state sales tax.
They shouldn’t. In 2021, state and local governments collected $477 billion in revenue from general sales taxes and gross receipts taxes. The population-weighted average combined sales tax rate was 7.53 percent.
By piggybacking on the federal government’s VAT, states would only need to levy a 2.43 percent tax on average to collect the same amount of money they are currently collecting. States do not have to do that, but fiscally, it would make sense.5
As such, a VAT would serve both our national and state interests.
Note: This is an ongoing series of blogs to develop an affordable, universal health care plan before the 2028 presidential election.
Author’s Calculations
1On page 64 of the CBO report, it compares Medicare, Medicaid, premium tax credits and related spending, and the Children’s Health Insurance Program spending between the years 2026 and 2036. I subtracted the 2026 figures for each program from the 2036 figures and came up with additional spending of approximately $1.435 trillion.
2In 2024, the United States spent $5.278 trillion on health care (CMS, NHE Table 1, 2024). To estimate the percent spending would increase under a universal health care plan because of increased utilization, I divided the projected increase in spending ($293 billion for increased utilization) by total U.S. health care expenditures ($5.278 trillion). This resulted in an approximate growth increase of 5.6 percent.
3According to OECD data, New Zealand’s VAT rate is 15 percent. It generates revenue equal to 10 percent of the nation’s GDP.
Thus, every 1 percent of VAT generates revenue equivalent to .67% of GDP (10%/15%). This is a rough benchmark if we faithfully adhere to the same constraints New Zealand uses for its VAT.
In the United States, the GDP in 2024 was $29.2 trillion. To convert .67% into a decimal, I divided 0.67/100 = .0067.
.0067 x 29.2 trillion = .196 trillion or $196 billion. Thus, if we follow New Zealand’s VAT formula, every 1% of VAT will generate approximately $196 billion.
If we need $866B, we will need a VAT rate of 4.42 percent ($866B/$196B = 4.42 percent)
4In New Zealand, there is no VAT on rent.
According to USA Facts, the median rent in the United States, including utilities, is $1,487 a month.
According to the Federal Reserve Bank of St. Louis, Americans spend about $41 a month on natural gas and $153 for electricity, totaling $194 for utilities.
Thus, the median rent in the U.S. is approximately $1,487 – $194 = $1,293 a month or 12 x $1,293 = $15,516 a year.
According to USA Facts, the median income for a renter is $4,537 a month x 12 = $54,444 a year.
The amount of income for a renter subject to VAT making $54,444 a year who saves no money is $54,444 – $15,516 a year = $38,928 a year.
The amount paid in VAT is $38,928 x .0442 = $1,721 a year or $143 a month.
5$477B/$196B = 2.43%
Selected Referenes
Committee for a Responsible Federal Budget. (2026, February 25). CBO projects high federal health program costs. https://www.crfb.org/blogs/cbo-projects-high-federal-health-program-costs
Congressional Budget Office. (2026, February). The budget and economic outlook: 2026 to 2036. U.S. Congress. https://www.cbo.gov/publication/61882
Federal Reserve Bank of St. Louis. (2025). Consumer Expenditure Surveys: All consumer units, expenditures, 2024 [Data set]. FRED, Federal Reserve Bank of St. Louis. https://fred.stlouisfed.org/release/tables?eid=1198038&rid=479
KFF. (2026). Marketplace average monthly benchmark premiums, 2026. KFF State Health Facts. Retrieved June 11, 2026, from https://www.kff.org/affordable-care-act/state-indicator/marketplace-average-benchmark-premiums/
OECD (2024), Consumption Tax Trends 2024: VAT/GST and Excise, Core Design Features and Trends, OECD Publishing, Paris, https://doi.org/10.1787/dcd4dd36-en.
Tax Policy Center. (n.d.). How do state and local general sales and gross receipts taxes work? Urban Institute and Brookings Institution. Retrieved June 11, 2026, from https://taxpolicycenter.org/briefing-book/how-do-state-and-local-general-sales-and-gross-receipts-taxes-work
Truman, H. S. (1951, February 2). Special message to the Congress recommending a “Pay as We Go” tax program. Harry S. Truman Presidential Library and Museum. https://www.trumanlibrary.gov/library/public-papers/28/special-message-congress-recommending-pay-we-go-tax-program
USAFacts. (2026, February 13). How much do households in the US spend on rent? https://usafacts.org/answers/how-much-do-households-spend-on-rent/country/united-states/