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  • A Bush economic plan I can get excited about

    Posted by ken on November 18th, 2004 (All posts by )

    It looks like Bush is set to push for more changes in the tax code, and he’s including some features that would make me a big fan if they stay in.

    The biggest one will do much to solve the “health care crisis” – it will eliminate the deduction that businesses currently get for offering company health plans.

    Why is this a good thing? Am I actually cheering a tax hike?

    Not exactly. There’ll be lower individual as well as corporate tax rates, and the plan is supposed to be revenue-neutral overall. But having employers “provide” health plans is decidedly inferior to having the employees buy their own plans, which is what seems likely to take place if this tax break finally, at long last, goes away. The market for health insurance will work better if insurance companies are competing to please the actual policyholders, rather than their employers. The current practice of having everyone in a given company charged the same rate regardless of risk factors is a strong incentive for companies to practice age discrimination and reject less healthy people, and removes an incentive that individuals would otherwise have to take cost into account when consuming health care and to keep themselves healthy.

    Other changes include elimination of double-taxation on corporate profits and an expansion of tax-free savings accounts, also eminently sensible moves.

    With expanded Republican representation in Congress, this should all have an easier time passing. And it hasn’t been wise in the past to bet against Bush getting his way when he really pushes for something.

    (Thanks to QandO for the link)

     

    26 Responses to “A Bush economic plan I can get excited about”

    1. Lex Says:

      “it will eliminate the deduction that businesses currently get for offering company health plans.”

      This will be nothing less than a one megaton blast. Oh my gosh. If he does this it will be a huge, huge step in the right direction.

      Bush does big things in a big way. Or tries to.

    2. Jonathan Says:

      Yes, it would be huge. It would transform the market for individual health insurance, which is currently kept artificially small by the fact that few people buy their own insurance. A federal bill to override State insurance regulation would also be a good idea, but elimination of the deduction is most important.

    3. Lex Says:

      So many people have a stake in the status quo one’s mind boggles.

      Bush will really have to struggle to get this through. It may not be possible.

      I read Ken’s link, the last line is “‘The White House is dreaming if they think they can do all this,’ said Bruce Bartlett, a conservative economist with the National Center for Policy Analysis.” Maybe. But the right thing to do is start off by demanding the entire Solar System, then fight like Hell and retreat to something achievable. You’ll get nickled and dimed anyway, so start out maximalist.

      (Bartlett’s columns are here. I’d heard of him but did not know his stuff. Skimming a few columns, he seems grumpy but sensible.)

    4. MikeR Says:

      I don’t see how making individuals pay for their own health insurance benefits anyone except their employers, who would pay for it under the current system. Regardless of whether you’re healthy or 5 days from death, its still an added expense for something you have right now.

    5. Ken Says:

      “I don’t see how making individuals pay for their own health insurance benefits anyone except their employers, who would pay for it under the current system. Regardless of whether you’re healthy or 5 days from death, its still an added expense for something you have right now.”

      They’d just eliminate the benefits and keep the money? Really?

      Let me ask you this. What stops them from cutting your salary right this minute? Surely they’ve got some reason to keep paying above minimum wage. I wonder what that reason could be…

      “Maybe. But the right thing to do is start off by demanding the entire Solar System, then fight like Hell and retreat to something achievable. You’ll get nickled and dimed anyway, so start out maximalist. ”

      Yep. Swing for the fences, baby. Our friends on the left have been insisting for four years that Bush is an extreme right-wing zealot that doesn’t give a damn about the rest of us and is eager to screw us to help out the fat cats, so it’s not like there’s any payoff for Bush in holding back.

    6. Richard A. Heddleson Says:

      I believe the origin of employer paid health insurance was wage and price controls in World War II. In order to get a pay increase to their members, unions got company paid health care as a benefit from companies. You can expect to see the unions fight this tooth and nail.

      This would be an outstanding return of health care to the free market. I suspect costs would go down and care up for 5 years. The only comparable event would be the advent of nationwide k-12 voucher based education. Which is more likely?

    7. MikeR Says:

      They don’t cut my salary because they have to keep it competitive. What does that have to do with tax cuts that enable employers to pay for health care?

    8. TJIT Says:

      MikeR,

      You pay for your health insurance right now, you just don’t realize it. Companies come up with the total amount they can afford / have to pay to hire someone / keep them hired. This cost is then spread out among salary and other benefits they pay. And the amount they pay for health insurance, less the federal tax deduction, comes out of your compensation even if it is not a line item on your paystub.

    9. Wade Says:

      I really like the incentives created by eliminating the deduction, but what happens to people who are essentially uninsurable, like those born with heriditary diseases?

    10. MatyaNoBaka Says:

      Well, i was hopeful that just the spending accounts would happen. This would be amazing.

      I was unemployed Feb through almost the end of Sept this year, and i was amazed at how little decent HMO coverage cost. When i discussed this with the two men who had been above me in the organization they also pointed out that the subsidized “family” based insurance was a particularly bad deal, as it is a “one size fits all” kind of package with no difference in cost to the employee between husband and wife with kids too old to be covered and a family with a house full of dependents. Turns out they could have taken 2 person coverage at the same HMO for $50 a month more than their employee contribution.

      Yeah, give me back the money in my paycheck and let me make my own decisions. Or even add it to profits and increase the stock dividend. I own stock…

      Matya no baka

    11. MikeR Says:

      All I’m saying is there’s less money for health insurance any way you look at it when the tax break is gotten rid of, unless private health insurance is that much cheaper. I’m pretty sure that group rates that the companies get are cheaper though.

    12. LotharBot Says:

      There’s only “less money” if individuals don’t get a tax break for their own health insurance.

    13. Jonathan Says:

      MikeR,

      It’s difficult to know what would be cheaper, because the current tax rules lead most people to buy insurance through employers, leaving only a vestigial market for individual health policies. This individual market would probably expand by orders of magnitude if insurance deductibility were eliminated, which in turn probably means there would be more competition and choice among its products and prices. Look at the market for automobile insurance, which is almost always purchased by individuals. There’s no lack of options for customers (except to the extent the industry is hamstrung by regulation), and no one suggests that auto insurance purchases be made on a group basis by employers instead of individual drivers.

    14. Ginny Says:

      Gerwitz – There’s little choice of insurance (although I’ll admit that’s fair) when everyone in the family is a lousy driver. We’re stuck with Progressive until some (or at least 1 or 2) of us learn how to drive. I doubt insurance will ever be cheap for those with chronic illnesses. Of course, some might argue that we control our driving and don’t our health.

    15. Jonathan Says:

      Ginny, the current mkt for individual health insurance is so limited that it accommodates mainly people who have no health problems, and even such people often have very limited selection. An expanded mkt for individual policies, driven by actual individual purchasers rather than group purchasers as now, might offer much more choice for most people. As for individuals with chronic health problems, I agree that’s an issue, but I don’t see why it should be allowed to set policy for everyone. Under the current system such people get swept into group policies, and are effectively subsidized by healthier people. If sicklier people are to be subsidized, why not subsidize them directly rather than allowing their presence to prevent us from reforming what is now a highly distorted insurance mkt.

    16. Wade Says:

      I imagine the reform will have to accomodate in some way those with chronic health issues, otherwise the costs of reform would fall on this unfortunate minority, which could generate a huge amount of resistance to the reform. And since many chronic illnesses are out of the sufferers control this seems like an appropriate situation to pool risks/costs in some way.

    17. DS Says:

      “I don’t see how making individuals pay for their own health insurance benefits anyone except their employers, who would pay for it under the current system. Regardless of whether you’re healthy or 5 days from death, its still an added expense for something you have right now.”

      This type of basic economic misconception, shared by almost everybody, is what will kill this idea. Most political strategies that involve a large “educating the public” component are doomed to fail.

      The Democrats must be licking their chops at all the fish they are going shoot in this barrell.

      Nice idea, but it will never happen.

    18. DS Says:

      Maybe a slightly different subject but, what ever happened to cutting government spending? Is that idea so passe’ that nobody even considers it any more? If that’s the case get ready for massive tax increases, possibly disguised in some other reform. The current budgetary situation can’t go on forever. While I think the economic impacts of a chronic budget deficit are vastly over-emphasized and most of the ideas for balancing the budget would do worse things to the economy, there is just something that doesn’t feel right about continually borrowing money, even if the proportion of GDP used up in that endeavor is shrinking.

      If I had Bush’s ear I tell him to shrink the percentage of GDP re-directed by government, which will make the economy explode. If everybody is making money hand over fist you can accomplish anything you want. If they are not anything you try will be difficult, mandate or not.

    19. Jonathan Says:

      . . . what ever happened to cutting government spending? Is that idea so passe’ that nobody even considers it any more?

      I share your sense of disappointment on this topic. It is not passe’, it’s a political elephant in the corner that many conservatives have given up talking about.

      Bruce Bartlett, I think almost alone among big-time columnists, argued some time ago that Bush will eventually have to raise taxes, given the current level of federal spending. I don’t know if he is right, but it’s difficult not to think that something will eventually have to give. Our current weak-dollar policy and its attendant whiff of inflation are also troubling.

    20. Michael Hiteshew Says:

      I think this is a great idea. Everything about the healthcare crisis screams market distortion.

      I also think many people are going to be frightened out of their collective wits by this proposal. To them, it’ll look like a new expense. Businesses, working in partnership with insurance companies, would do well to initiate employee education programs:

      1. Here’s how much we’re paying for your healthcare. This money will soon show up in your paycheck.
      2. Here’re companies X, Y and Z for comparison of the plans they’re offering and their costs.
      3. We advise you to put your newly accessable healthcare money into your tax free healthcare account. Our payroll folks can sign you up for today.

      Even a small business can afford a 45 minute meeting with their employees on healthcare. If they can’t afford to pay them for that time it can be done after hours.

      What would be even better would be to pass this in conjunction with tort reform, both for doctors and drug companies. Suing doctors every time there’s a complication and suing a drug company every time an FDA approved drug adversely affects some segment of the population is hurting everyone.

    21. MatyaNoBaka Says:

      MikeR: It’s not that private rates are any cheaper, it’s that you can buy what you need in the private market instead of “one size fits all”. There’s no reason why my boss, or his boss, should have had to pay for an insurance plan for 4 people. In both cases it was just a married couple being insured. However, Blue of MA only offered the company two policies, one for singles, and one for families costed to cover parents and 2 children.

      So removing the tax benefit doesn’t necessarily mean less money because group rates are cheaper. Though it probably will mean higher rates for families of, say, six…

      Matya no baka

    22. Jonathan Says:

      It would mean more choice all around. Right now, even policies designed for one person are designed on a one-size-fits-all basis. Some types of polices are simply unavailable. For example, you can’t buy a major-medical-only policy in most places (at least I haven’t found one) — you can only buy major-medical bundled with a lot of other benefits that are more expensive. Part of the problem is state-govt mandates, but the other part results from the fact that most insurance buyers now are buying for groups rather than themselves.

    23. lindenen Says:

      Help me out here.

      “1. Here’s how much we’re paying for your healthcare. This money will soon show up in your paycheck.”

      I don’t understand why the first sentence is thought to lead to the second one. What is the evidence that makes you think it will soon show up in my paycheck? What’s to prevent the company from just pocketing the money and spending it on expensive raises for executives, etc.?

    24. DS Says:

      “What is the evidence that makes you think it will soon show up in my paycheck? What’s to prevent the company from just pocketing the money and spending it on expensive raises for executives, etc.?”

      Because the first company that needs to hire workers away from other companies will offer more money to come work for them, and because they 1) don’t have to pay for the new employee’s healthcare they will have more money to pay outbid his current employer 2) becuase his current employer doesn’t have to pay for his healthcare anymore he will have extra money to match the new offer, 3) Both employers will be able to hire more workers (which they will have to pay higher wages in order to attract away from other companies) because hiring a worker will be less costly on a long-term basis, 4) I’m sure the media will be looking for the first company they can find who pocketed the difference and embarrass the hell out him.

      Wages are based on supply and demand. There is a certain portion that every business must dedicate to paying employees. That is set by the MARKET, not the employer. If the employer tries to pay below the market, he will lose employees.

      Question: What would happen where you work if your employer suddenly gave everybody an across the board 40% pay cut? Everybody would leave. Why? Because that’s lower than the market demands that he pay for labor.

    25. lindenen Says:

      So let’s say I make $30,000/year and my employer pays for my health insurance. Then I lose my health insurance and I’m supposed to get an individual policy. So I now have to pay for something I was previously getting free. This isn’t going to make me happy or anyone else happy.

    26. DS Says:

      “So I now have to pay for something I was previously getting free.”

      You weren’t getting it for free, you just weren’t paying for it directly (so you didn’t care how much it cost). It’s an illusion. There is no free lunch.

      You were paying for it becuase the market assigns a certain amount of compensation to workers for their given contribution to your employers business. The fact that your employer gives you “free” health insurance means that you will recieve less compensation in cash and more in intangible benefits. This is not something that your employer gets to decide for himself. He is stuck with what the market provides.

      When your employer and every other employer no longer need to provide health benefits the market will move wages up to compensate. This will happen because 1) the workforce as a whole just got a lot more productive (cost/per unit produced) which will allow him to offer higher wages without impacting his bottom line 2) workers who must now pay for their own health insurance will demand raises to pay for this. Because all workers will be in the situation they will be much less likely to accept lower wages. To keep current employees and to attract new employees, businesses will have to pay higher wages. That’s not because they are compassionate caring individuals who are doing the honorable thing. It’s because the market will force them to.

      NOTHING is free.