President Obama has painted himself into a very tight corner with his promises on health-care reform.
First, he has vowed repeatedly and unambiguously that no one with an annual family income of $250,000 or less will face a tax increase. He renewed the pledge in his September 9 speech before the joint session of Congress. “The middle-class,” he vowed, “will realize greater security [under his health-care reform plan], not higher taxes.”
Translation: No matter how much new tax revenue Obamacare may require, rest assured that every penny will come (with apologies to former senator Bob Dole) not from you, not from me, but from those 4 million “wealthy” American households behind that tree. If you live in one of the 130 million or so non-rich households, you can just sit back and watch your rich neighbors fight the tax man.
But there’s another pledge, often overlooked but equally significant, that leaves the president trapped in his freshly painted corner. “I will not sign a plan,” he vowed on September 9, “that adds one dime to our deficits — either now or in the future. Period.”
Should anyone doubt this fiscal promise, Mr. Obama went on “to prove that I’m serious.” How? By promising that his pledge of deficit neutrality will be enforced by “a provision . . . that requires us to come forward with more spending cuts if the savings we promised don’t materialize.”
If Congress adheres to these twin pledges, lawmakers will face severe constraints. How will they offset the trillions required to pay for the Cadillac insurance coverage they intend to impose on their constituents? Even the most rapacious class warriors realize there are limits to how many additional billions they can squeeze from “the rich.” And there are limits to how much “waste, fraud, and abuse” can be cut from Medicare, and to how many billions of dollars’ worth of unfunded Medicaid mandates can be dropped into the laps of the 50 state governors.
Health-care reform that explodes government debt appears to be a nonstarter. That leaves only one option: raise hundreds of billions through a straightforward health-care tax not only on the rich, but on just about everyone else as well.
Such an honest approach would, of course, tank the economy. It would also be the most flamboyant act of political suicide in many years. Thus, in the words of one health-care-industry lobbyist, the game is “to avoid the perception that the middle class is going to be taxed. The trick is to get funding for the bill but not to have anything that smacks of a middle-class tax.”
So, rather than acknowledge that the health-care-reform plan now under review in the Senate Finance Committee is replete with new taxes, the costs of which will be borne directly and indirectly by middle-class families and small-business owners, nervous lawmakers are now engaging in a game of intellectual gymnastics worthy of the Olympics.
Leading Democrats on the Finance Committee maintained last week that a government mandate to purchase government-designed insurance plans that could amount to 13 percent of a family’s income is not a tax. Many upper-middle-income taxpayers, moreover, would be required to buy these plans without the benefit of subsidies.
Nor, the Democrats argue, are the penalties to be assessed against recalcitrant citizens who refuse to comply with this mandate a tax. But this claim imploded when the congressional Joint Committee on Taxation confirmed that Americans who do not pay these penalties would in fact be considered tax cheats and would face legal action from the Internal Revenue Service. The chief of staff of the Joint Committee on Taxation, Thomas A. Barthold, asserted that the IRS would “take you to court and undertake normal collection proceedings” if you resisted paying the penalty. The consequences are dire: If your resistance is deemed a misdemeanor, you could pay a penalty of up to $25,000 and face up to one year in prison. For felony tax evasion, the fine could hit six figures and the prison term stretch to five years.
The intellectual-gymnastics competition also extends to indirect taxes. Costs that will ultimately be passed on to consumers include tens of billions in proposed levies on the companies that produce power wheelchairs, insulin pumps, cardiac defibrillators, hearing aids, contact lenses, and other medical devices. The same holds true for billions in taxes on drugs to fight cancer, Alzheimer’s, diabetes, and heart disease and on certain expensive health-insurance plans. And physicians (and other providers of Medicare services) will surely find ways to pass on the new $350 “screening” fee lawmakers want to impose on those who treat Medicare patients.
And that’s just the tax carnage the Senate Finance Committee’s bill proposes to visit on us denizens of the middle class. Other proposals offer up exciting new ways to raise taxes while avoiding “the perception that the middle class is going to be taxed.”
To be fair, the leading House proposals raise most of their revenue from a massive new surtax on the “rich,” thus partially honoring the president’s tax pledge. But these bills also include debilitating financial penalties — tantamount to new payroll taxes — on employers who fail to offer “acceptable” health-insurance coverage. Individuals who choose to go without coverage must pony up a pretty penny to the IRS as well.
No, it is impossible to look at these bills without concluding that, like water flowing down a mountain stream, all these costs will eventually trickle down to ordinary Americans. Convince Main Street of that, and the prospects for big government health-care reform will evaporate.
– Michael G. Franc is vice president for government relations of The Heritage Foundation.