Critical Condition

Legislate in Haste, Repent at Leisure

In a telling moment yesterday, as reported by the New York Post, Senator Reid tacitly conceded concerns from conservatives and moderates that the rush to get something done and declare victory wasn’t the right way to reform the nation’s $2 trillion health-care sector:

It’s better to have a product based on quality and thoughtfulness rather than try to jam something through.

Well, yes. 

Unfortunately, jamming something through — before anyone has time to read the 1,000+ pages of fine print — has been the agenda all along. That agenda is finally showing cracks. 

The president also didn’t do himself any favors at his Wednesday night press conference by lambasting Republicans and ignoring concerns from the moderates and Blue Dogs in his own party. Americans who tuned in heard lots of platitudes but very little substance.

The Democrats latest meme is that only the “rich” would pay for health-care reform. This is a bad idea, explains Bill Gale from Brookings

Choosing to finance health care reform by taxing the rich is bad economic policy, bad health policy, bad budget policy and poor leadership.

It is bad economic policy because, coupled with the scheduled expiration of the Bush tax cuts, it would raise marginal tax rates by 10 percentage points for high-income households. While I object to the general hue and cry that occurs anytime anyone discusses any potential tax increase for the rich, it is nevertheless quite fair to say that a 10 percentage point increase in taxation on the return to labor and capital income is a lot and shouldn’t be the first choice.  (But please spare me the small business arguments.)

It is bad health policy because we need to fix the structural problems in health care in order to cut costs and be able to expand coverage. One of the biggest structural problems is the non-taxation of employer-provided health care. Fixing that – converting it to a refundable fixed credit a la Furman and McCain – would not only raise a lot of money, it would improve incentives for health care.  Taxing the rich does not address this issue at all – it may raise the same amount of revenue but it does not address the incentive problem that arises from nontaxation of employer provided health care.

It is bad budget policy because we are using up one of our options on the revenue side not to cut the deficit but to finance new spending. We need to save our powder for deficit reduction activities – use the change in tax treatment of employer sponsored health care to finance health care and use general revenue increases to finance general deficit reductions.

It is poor leadership because it furthers the myth that we can solve our fiscal problems by taxing “other” people or with gimmick taxes.  It has been said many times already and will be said many times again:  we are going to need broad based tax increases and spending cuts to bring the fiscal house into order and the more politicians continue to act as if we can just foist the financing on a small group (be it rich people or foreign corporations or obese people or people who drink soda, etc.) the worse are our prospects for solving the problems. 

 Hat tip: Greg Mankiw.        

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