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Thursday, July 2, 2009
9:55 AM EDT
Wallace Forman and Jacob Feldman

Meet the Health Care Taxes

President Obama and Congress Democrats are proposing health care reforms plans that will cost over $1 trillion in new government spending. Coming in the middle of crippling budget deficits, new spending equals new taxes under the left’s bizarre definition of “fiscal discipline”. Before they sign off on socialized medicine, Americans should know about the taxes that Democrats want to pass to pay for it.

Limiting the Medical Benefits Tax Exclusion
Americans currently pay no income taxes on the premiums paid for employer-provided insurance. After repeatedly attacking McCain for his plan to repeal this exclusion, the Obama administration is considering similar measures. A tax on health benefits would fall hardest on older, sicker Americans with higher premiums. Ironically, this is the group already most hurt by the skyrocketing costs of medicine.
 
Payroll Tax
The House Ways and Means Committee has proposed a 3% payroll tax on employers’ health care expenditures. This tax is similar to a repeal of the employee health benefits tax exclusion – it would fall hardest on the old and sick – but lacks its saving grace: it leaves the individual and employer markets on un-equal playing fields.
 
“Sin” Taxes
The Senate Finance Committee has proposed taxes on alcohol or sugary drinks. These “sin taxes” fall disproportionally on lower-income Americans. They are not expected to be a sufficient source of funds on their own, and similar taxes commonly fail to raise predicted amounts of money – in part because consumers stop consuming the taxed product. A sin tax now means another tax later.
 
Reducing the Charitable Giving Deduction and Other Itemized Deductions
Obama originally suggested paying for health care by reducing the deduction that wealthy individuals receive for some itemized deductions, including charitable giving. Currently, the wealthy receive a deduction equal to the amount of income tax that would have been paid on their gift. Decreasing the deduction amounts to taxing charity. This sort of tax would disincentivize charity and would harm the rich and poor alike.
 
Income Tax Surcharge
Rep. Pete Stark predicts that Congress will need to pass an income tax surcharge. Increasing the income tax decreases real wages and discourages employment. Reduced unemployment leads to lower GDP and a higher cost of doing business.
 
Corporate Tax
In the opening weeks of his administration, Obama called for a repeal of overseas corporate tax deferrals. High US corporate tax rates already put American companies at a disadvantage. Repealing the deferral would prohibit American companies from reinvesting their profits at the same cost as their foreign competitors – making these firms less competitive and less profitable.
 
VAT
Several members of the Obama administration have nervously mentioned a VAT. A VAT taxes the value added to a good at each stage of production. The costs of taxation are passed down the line of production to the consumer. Higher consumer prices mean a lower standard of living, and because low-income individuals consume a larger portion of their income, they end up paying a disproportionately large portion of the tax. Because VAT costs are hidden from consumers, politicians pay little price for inflating them from initially low rates.

The list goes on. In February the Senate Finance Committee proposed a jumble of tax increases to pay for new health care programs. The measures include a repeal of the itemized deduction for medical expenses and new restrictions on health savings accounts (HSAs), flexible spending arrangements (FSAs), and health reimbursement arrangements (HRAs). These tax increases are especially cynical: they would not raise enough money to pay for any significant health reform. Instead they are intended to entrench the tax advantages of employer-provided health plans and stamp out the already-burdened individual insurance market.

We don’t need these taxes, and we don’t need the statist solutions proposed by President Obama. We need free market reforms and a repeal to the burdensome regulations crippling our health care industry. For a plan that offers these things, see Sen. Jim DeMint’s Health Care Freedom Act, endorsed by ATR.

Posted by Wallace Forman and Jacob Feldman on Thursday, July 2, 2009 9:55 AM EDT
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