With the apparent defeat of Obamacare, believers in small government rejoiced today, for disaster, at least for now, seemed to have been averted.
But riding hard to snatch defeat from the jaws of victory, self-proclaimed libertarian Megan McArdle today proposed an apparent “conservative” plan to dramatically hike taxes and increase the size of government. Because that’s exactly what we need to “reform the U.S. healthcare system”.
Ms. McArdle’s proposal may be summed up as follows:
“Raise the Medicare tax by half a percentage point, and eliminate the tax-deductibiity of health insurance benefits for people making more than $150K a year in household income, $100K for singles. Then make the federal government the insurer of last resort. Any medical expenses more than 15% or 20% of household income, get picked up by Uncle Sam.”
Ms. McArdle proceeds to state that this is “a pretty small tax”. Which makes it okay apparently. So let us break down her proposal.
Firstly, she wishes to increase the Medicare tax 17% (current rate is 2.9%, a half a percent increase to 3.4% would equate to a 17% tax hike). With the Medicare tax bringing in an (estimated) 191.5 billion in 2010, this would mean an additional $32.6 billion in taxes a year, or a staggering $391.2 billion over a 10 year period (adjusted economic growth).
Secondly, Ms. McArdle wishes to eliminate tax deductions for households making over $150K a year, or $100K for singles (why she wishes to create an additional marriage penalty is unknown to me – surely it would have been fairer to make it 100/200 or 75/150, but anyway).
Whilst it is difficult to work out the exact cost of this, it is possible to make a rough approximation as follows: the average price of an employer provided health plan for a family is $12,200. Using a blended federal marginal tax rate of 30%, this would mean a tax hike averaging $3,660 per household per year. With approximately 7 million households in this category, this would work out at 25.6 billion a year, or, $307.2 billion (adjusted) over ten years.
Combining the two parts of Ms. McArdle’s “small” tax hike, therefore, you get a total of a mind-blowing $700 billion tax hike over a ten year period: This is not only more than the Democrats proposed to increase taxes to pay for Obamacare: it is the largest tax increase in U.S. history.
And what would this money be used for? To turn the government into an ‘insurer of last resort’. Because althoughthe US government spends more per capita on health care than any other large economy in the world, apparently more government spending is what is needed.
Of course, a situation where the government would simply write a check for all large expenses would lead to healthcare costs spiraling out of control due to the lack of accountability and competition. It would mean many, many people would simply not get health insurance (why bother, if the government will just pick up the tab?).It would lead to the collapse of health insurance companies, and as the government would effectively fund most healthcare, would lead eventually to government run healthcare. Which one would think is hardly the outcome those of us on the right ought celebrate, but hey. We need a “plan”!
The reason behind this proposal – it must be noted – seems to be a response to the standard leftist practice of saying those of us who opposed Obamacare had no plan – so she came up with one. Unfortunately, it seems, despite her valid opposition to Obamacare, Ms. McArdle is one of those people for whom the solution to everything for some people is a tax increase.
We at Americans for Tax Reform will forgive Ms. McArdle for being unaware of the alternative plans (perhaps Andrew Sullivan has used up all of The Atlantic Offices’ bandwidth to troll for Sarah Palin conspiracies online and she wasn’t able to come across them), however, numerous alternative plans have been proposed, such as The House GOP Alternative Healthcare Bill, and we at Americans for Tax Reform have been consistently advocating numerous incremental and political realistic reforms to restore a free market healthcare system.
For instance, you can allow people to buy insurance across state borders, allowing the free-market to work country-wide (as has been proposed by Shawn Tulley, the Wall-Street Editorial board and Senator Jim DeMint). Dropping the laws that prevent people from buying insurance across state borders would supply vital competition, and would significantly reduce costs. To the best of our knowledge, no-one has actually provided a counter argument to this. Or, as explained by John Mackey, CEO of Whole Foods, you expand the availability of deductible health savings accounts.
Another way to reduce costs is on the supply side. The Association of American Physicians and Surgeons has stated barriers to entry is one of the most pressing issue, which can be addressed through dregulating the medical market (see Kevin Pho and Vance Harris). Tort reform is an obvious ‘low-hanging’ fruit, that, by most estimates, would reduce healthcare costs by $100 billion. Not a silver bullet, true, but every cent counts. Another low hanging fruit is greater transparency – Allowing individuals additional information about their health care company (like a satisfaction rating on amazon.com) is a simple way to help re-center the free-market.
Perhaps best of all though, you can cut taxes on individual healthcare purchases. Currently, you can spend pre-tax dollars on an employer-provided insurance plan—a plan that doesn’t go with you if you lose your job. If we want to incent people to buy their own personal plan, we could allow people to buy their portable, personal plans with pre-tax dollars too This is the best way to drive down costs (see Martin Feldstein, Michael O. Leavitt, and Shawn Tulley)
So you see, there are plenty of free-market alternatives out there. Those that don’t hike taxes, and don’t increase the size and scope of government. And will actually improve healthcare.
Ms. McArdle concludes by stating that “That’s my suggestion. I’m sure you can pick holes in it, and it might be pretty ugly by the time the lobbyists got through with it”. Well yes, there are quite a few holes that we were able to pick in it. It’s just that, as a plan, it’s not one that will be ‘pretty ugly by the time the lobbyists get through with it’. Rather, and I say this with the greatest possible respect, it’s pretty damned ugly right now.