No New Taxes for Under $250K?

I’m in a small minority among conservatives in that I think President George H.W. Bush was right to raise taxes when he was in office. It was a tremendously difficult decision, but I think he recognized that the fiscal picture was in danger of deteriorating to such an extent that it would damage America’s long-term economic prospects. Yet Bush also pledged not to raise taxes during his 1988 presidential campaign, and many voters, particularly conservative voters, felt betrayed. This contributed directly to President Bush’s 1992 defeat. 

During the 2008 presidential campaign, Barack Obama pledged to not raise taxes on families earning less than $250,000. And now, as Kevin Hassett explains, it seems very likely that he will support a health reform proposal that will do exactly that.

The [Joint Committee on Taxation] report projected that the excise tax would raise about $52 billion in 2019. Of that, about $8.9 billion would come from taxpayers with incomes of less than $50,000; about $19.4 billion from taxpayers with incomes between $50,000 and $100,000; and about $17.4 billion from taxpayers with incomes between $100,000 and $200,000.

Add those up, and you see that about 87 percent of the revenue in the original Baucus proposal to finance Obamacare would come from individuals with incomes of less than $200,000.

Baucus and the Senate committee have since upped the proposed tax to 40 percent, and the trigger thresholds to $9,850 and $26,000, tweaks that shouldn’t change the basic thrust of the story. The Democrats’ plan is a moving target–and given who will pay the tab, that is probably on purpose.

The remarkable thing is that this revenue comes from low- and middle-income people who already have insurance. Many members of organized labor have these “gold-plated” plans. And they would be worse off, not better, because of Obamacare.

During the campaign, I was convinced that the Democratic candidate would break his pledge rather than abandon his various spending proposals. I also believed, and still believe, that we need to reform the tax code in a way that might raise taxes on some families earning less than $250,000, including families with so-called gold-plated coverage.  

So does this mean it’s right to let President Obama and the Democrats off the hook? I think the difference — and I’m sure supporters of the health reform proposal would disagree with me — is that the first President Bush raised taxes to improve the long-term fiscal position of the United States government, whereas this health reform proposal, even when you factor in the new revenue, will create new work disincentives while in all likelihood exacerbating cost growth. Note that a more expensive and centralized health reform might not have these deficiencies, just as a more laissez-faire reform, the kind of reform I’d much prefer, might also not have these deficiencies.  

Among Democrats and liberals, there is a belief that Republican opposition to the various Democratic proposals represents a kind of “nihilism,” and that because Baucuscare resembles proposals offered by liberal and moderate Republicans in the 1990s, today’s opposition is obviously unprincipled if not insane. My sense is that we’ve learned a great deal about health reform over the intervening period, and that, as Christensen, Grossman, and Hwang have argued, it is disruptive competition that promises substantial improvement in the cost and quality of medical services over time. I’m increasingly convinced that the only way to move in this direction is to create a system of universal catastrophic coverage and universal health savings accounts, as proposed by Martin Feldstein and a number of others. The emerging consensus among congressional Democrats moves us in a very different direction, towards a highly centralized, highly regulated system that will give entrepreneurs very little room to dramatically improve care. With that in mind, I don’t think opposition is “nihlistic”; rather, I think it’s responsible.

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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