- The health care bill unveiled this week by the House
of Representatives (with the full support of the Obama administration)
is one of the worst pieces of legislation ever drafted. If passed, it will
reduce the quality and increase the cost of health care in America. But
more importantly, it will severely undermine our already weak economy.
To burden a country currently in the throes of a violent recession with
such a bureaucratic albatross clearly illustrates the scarcity of economic
intelligence in Washington.
- In the first place, specifically taxing the rich to pay
for health care for the uninsured is the wrong way to think about tax policy
and is an unconstitutional redistribution of wealth. While the government
has the constitutional power to tax to "promote the general welfare,"
it does not have the right to tax one group for the sole and specific benefit
of another. If the government wishes to finance national health insurance,
the burden of paying for it should fall on every American. If that were
the case, perhaps Congress would think twice before passing such a monstrosity.
- In the second place, the bill is just plain bad economics.
For an administration that claims to want to create jobs, this bill is
one of the biggest job-killers yet devised. By increasing the marginal
income tax rate on high earners (an extra 5.4% on incomes above 1 million),
it reduces the incentives for small business owners to expand their companies.
When you combine this tax hike with the higher taxes that will kick in
once the Bush tax-cuts expire, and add in the higher income taxes being
imposed by several states, many business owners might simply choose not
to put in the extra effort necessary to expand their businesses. Or, given
the diminishing returns on their labor, they may choose to enjoy more leisure.
More leisure for employers means fewer jobs for employees.
- More directly, mandating insurance coverage for employees
increases the cost of hiring workers. Under the terms of the bill, small
businesses that do not provide insurance will be required to pay a tax
as high as 8% of their payroll. Since most small businesses currently could
not afford to grant 8% across-the-board pay hikes, they will have to offset
these costs by reducing wages. However, for employees working at the minimum
wage, the only way for employers to offset the costs would be through layoffs.
- The uninsured self-employed, or those working as independent
contractors, will be forced to buy insurance or pay a tax equal to 2.5%
of annual income. Either choice will divert resources from more productive
uses into an already out-of-control health care bureaucracy.
- Sadly, the bill does nothing to restrain or alter the
dynamics that have caused health care costs to spiral ever higher. In fact,
the bill will intensify these pressures.
- The simplest (but by no means fullest) explanation of
why health care costs so much is that demand exceeds supply. Demand is
a function of how much people are prepared to pay. Insuring more people
will drive demand for health care services even higher. (To truly get a
handle on out-of-control health care costs, we need more people paying
for routine medical care out of pocket, and tort reform for medical malpractice.
my previous commentary.)
- As costs continue to soar, expect additional tax hikes
to fund the added expense. As these additional taxes further encumber a
weak economy, the diminished tax base will yield lower total tax revenues
despite higher rates. As the politicians attempt to pass ever higher
increases to make up for revenue shortfalls, a vicious cycle toward insolvency
- The worst part of the whole fiasco is trying to imagine
the bureaucracy necessary to administer this plan. My guess is that the
government provider will mis-price its policies on the low side, pushing
employers to dump private sector insurance for the taxpayer-subsidized
alternative. Such a system will further distort health care pricing and,
ultimately, make a bad situation intolerable.
- The enormity, complexity, and expense of this bill could
well pull the rug out from what many of my cheerleading colleagues believe
to be the beginning of an economic recovery. The way I see it, the economy
is walking dead anyway, and this measure is the equivalent of a stake through
the heart. But even if we manage to escape the grave this time, Congress
is working on a few other ideas that will surely keep us buried.