Thursday, May 14, 2009

Paying For a Big Part of Health Care Reform With New Taxes Would Be a Terrible Mistake!

How would you like a chunk of your income taxes tied to the top line in this graph?

The top line represents the health insurance cost trend rate over the past 20-years.

The two bottom lines represent the increase in worker earnings and overall inflation during the same period.

This chart comes from the Kaiser Family Foundation.

I have repeatedly reported here that the Congress is having trouble finding the savings necessary to pay for health care reform. The bill will likely cost at least $1.2 trillion over ten years and so far no one has put more than about $300 billion in offsetting savings from the health care system on the table.

Tax increases will undoubtedly be part of any successful health care reform effort.

But paying for most of health care reform by raising taxes would be nothing less than cowardly and fiscally irresponsible.

It would be cowardly because it would mean that the Congress was not able to stand-up to the special interests that have been a part of this bloated and inefficient health care system and force the long-term savings that are so critical to getting America's fiscal house in order.

It would be irresponsible because we did not use reform to bring our system under control--we just raised taxes to keep paying this already unaffordable and unsustainable bill.

The President has said we can't continue to "kick this can down the road" any longer. He has said that we must do health are reform this year because we will never get our entire fiscal system under control if we do not deal with health care costs.

The President is right on both counts.

But I smell a trend here--the Congress may be about to use tax increases more than health care system reform to pay for it all.

At the top of the list is phasing out the tax deduction for employer-provided health insurance for families making over $160,000 a year. The CBO says that could save as much as $552 billion over five years.

But if we also don't get health care costs under control how long would it be until that $160,000 cutoff started to fall into the middle class?

Let me be clear. I support means testing for both Medicare and Social Security. It makes sense to me that we should use the income tax system to encourage more efficient health plan design--limiting tax deductibility to the level of a standard plan, for example.

And undoubtedly, some tax increases are unavoidable for something as big has health care reform.

But relying on tax increases so we can take a pass on facing up to the cost of health care and its impact on our long-term fiscal solvency? That would be cowardly and it would be irresponsible.

But the Congress is so desperate to find money and so unwilling to anger any powerful health care special interests we better get ready for some interesting rationalizations to promote tax increases in the place of fundamental reforms.

The latest tax idea to surface in the Congress is the soda pop tax. The CBO says a three cent tax on drinks that include sugar would raise $24 billion over four years. On the surface that might not be such a bad wellness idea--as if three pennies will change any behavior.

Whatever the proposals, any tax increases need to be a small part of health care reform and not an example of Congress finding it easier to hit consumers with something like a new soda pop tax rather than facing up to health care special interests and their powerful lobbyists.

Recent post: Halfway to Paying for Health Care Reform? A Growing Consensus for Taxing Health Insurance Benefits Produces Lots of Money
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