In a recent New York Times column titled, “How an Insurance Mandate Could Leave Many Worse Off,” George Mason University economics professor Tyler Cowen pointed out:
AMERICANS seem to like the idea of broadening health insurance coverage, but they may not want to be forced to buy it. With health care costs high and rising, such government mandates would make many people worse off.
The proposals now before Congress would require just about everyone to buy health insurance or to get it through their employers — which would generally result in lower wages. In other words, millions of people would be compelled to spend lots of money on something they previously did not want, at least not at prevailing prices.
Estimates of this burden vary, but for a family of four it could range up to $14,000 a year over the next decade, according to the Congressional Budget Office. Right now, many Americans take the gamble of going without insurance, just as many of us take our chances with how much we drive or how little we exercise.
In effect, if these proposals pass, the Democrats would be telling the working poor: “If you have been choosing between food and health insurance, you no longer have that choice. You must buy the health insurance, and we will decide what kind of health insurance you will buy and how much you will pay for it.”
Professor Cowen is right – but that is only the beginning of the burden this legislation would put on the poor. Despite the rhetoric about “spreading the wealth around,” much of the tax burden falls squarely on the poor – as well as on those who employ low-income workers. Naturally, when business have to pay higher taxes for hiring workers from low-income families, many of the workers who need jobs the most will find themselves taxed out of their jobs.
As if that weren’t bad enough, the Senate Finance Committee’s bill contains several new taxes that narrowly target people who need health care, regardless of income level. There are taxes on medical devices, taxes on high-end health plans, and a cut in the tax deduction for those with high health care expenses.
Professor Cowen goes on to point out that the subsidies for those with low and moderate incomes act like a very high tax rate:
A subtler problem is what economists call “implicit marginal tax rates.”
The fiscal reality is that not all income groups can receive equal subsidies; as a family earns more, its subsidy would probably decrease, eventually falling to zero. But then we are taking money away from the poor as they climb into higher income categories. This is a disincentive to earn more, and the strength of the disincentive increases with our initial generosity. For many people, the health insurance aid would phase out when food stamps, housing vouchers and the earned income tax credit also end and the personal income tax kicks in.
This structure of incentives would likely discourage many parents from earning a better life for their children. Congress could tweak the subsidies so they don’t phase out so quickly, but then we’re back to very high fiscal costs and subsidies for many families in the higher income classes.
Indeed, James Capretta of the Ethics and Public Policy Center has run the numbers, and calculated that those earning incomes just over the federal poverty line would face an effective marginal income tax rate of 70 percent! And that’s before including the effects of losing food stamps and housing subsidies.
Needless to say, this would leave the poor facing a higher marginal tax rate than even the richest Americans. Is this what then-candidate Obama meant when he said, “If you make less than a quarter of a million dollars a year, you will not see a single dime of your taxes go up. If you make $200,000 a year or less, your taxes will go down”?