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![handle is hein.taxfoundation/iretcgadv0257 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION
IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing
the public about policies that will promote growth and efficient operation of the market economy.
December 11, 2009
Advisory No. 260
HEALTH BILLS' TAX INCREASES WOULD
HARM HEALTH CARE AND THE ECONOMY
If Congress ultimately passes a health care bill
along the lines of what the House narrowly voted for
in early November (the 1,990 page Affordable
Health Care for America Act, H.R. 3962) or the
Senate is debating currently (the 2,076 page Patient
Protection and Affordable Care Act, H.R. 3590),
Washington would greatly expand its control over
and financing of health care in America, through both
direct government spending and new requirements on
employers, individuals, insurers, and health care
providers. Either bill would enormously increase the
government's financing needs, as well as its power
over the citizenry, moving the United States several
giant steps toward a European-style welfare state.
The bills also raise concerns because in
important ways they would conflict with, not
advance, their stated objectives. The three main
goals are lowering the cost of health care, improving
the quality of care, and enhancing access to care.
The focus of this paper will be on how the tax
increases in the bills would alter people's incentives
and, thereby, change their work, saving, and
investment decisions. Before turning to tax effects,
though, it may be useful to consider a few problems
with the bills on the cost front, in order to provide
background and indicate why, even if tax distortions
are ignored, the House and Senate bills would be
unlikely to achieve their stated objectives.
Some cost issues
The Obama Administration insists that reducing
costs is, and must be, one of the guiding principles
of its health care plan. Comprehensive health care
reform can no longer wait. Rapidly escalating health
care costs are crushing family, business, and
government budgets.'1 Unfortunately, a massive
new federal entitlement program is unlikely to result
in lower costs.
* The director of the Congressional Budget Office
(CBO), Douglas Elmendorf, stated in testimony
before the Senate Budget Committee in July, In the
legislation that has been reported we do not see the
sort of fundamental changes that would be necessary
to reduce the trajectory of federal health spending by
a significant amount. And on the contrary, the
legislation significantly expands the federal
responsibility for health care costs... [T]he curve is
being raised.'2
* Mr. Elmendorf has since noted that CBO only
estimates government costs, and that it does not
estimate what may be a more important cost curve:
the one pertaining to total national health care
spending (government and private). Because a new
federal entitlement program could substitute to some
degree for private spending, it is possible, in theory,
that a government program might not raise total
spending - provided the government makes more
efficient choices and is better at combating waste and
fraud than private firms and individuals who have
their own money at stake. In reality, however, the
government would almost certainly push up total
spending: it is usually less efficient and more
wasteful than private firms and individuals precisely
because elected officials and government bureaucrats
are not spending their own money. A study by the
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