In Washington, words such as “cost,” “tax,” “subsidy,” “spending,” and other fiscal terms have no fixed meaning. For example, it is considered costly to cut taxes, and a subsidy to provide a tax break. This morning, we read that Bush wants to provide a tax break to low income people who buy private coverage, while taxing people “for some workers whose health plans cost significantly more than the national average.”
At first, it was unclear to me what the second idea is referring to. Does it mean caps on the amount of Medicare and Medicaid services that individuals can consume? If so, that’s not really a tax, since these programs are transfer programs. I had to read three separate stories to find that he means employer-provided health benefits of all sorts, which will now be treated as taxable income when they are used above a certain amount (if I’m understanding this correctly).
The irony is that such coverage only became standard at a time of wartime wage controls, when business was looking for some way to provide remuneration that was legal. We can’t say for sure what benefits packages would look like in a free market but it is surely likely that employer-provided coverage would not be the norm.
But to now treat such benefits as taxable income doesn’t seem like the right path. In fact, it smacks of a sort of demand-side central planning that will produce unknown numbers of unanticipated effects. One wonders, for example, whether people would then have an incentive to consume as much as possible to stay under the ceiling, as a means of dealing with the uncertainties of the next fiscal year. And the effect on the rising cost of medical services is unclear: whatever decrease in demand is produced might be more than offset by the increased demand from new coverage for low income and self-employed people, to say nothing of the proposed federal subsidies for hospitals.
As for the politics of it all, the second term of any Republican president always seems to involve some big plot to increase taxes. People tend to be pretty sensitive about this issue. The proposal alone could drive his poll ratings down to Nixon levels and lower. What a splendid way to wrap up one of the worst modern presidencies.
