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Monday, June 22, 2009

Taxing Health Care Benefitis is Political and Economic Suicide

There is word that Senator Max Baucus (D Montana) is floating an idea to tax health care benefits.

About one in eight U.S. workers who receive health benefits from an employer -- more than nine million workers -- could pay higher income taxes on benefits as part of a Senate proposal that aims to raise billions of dollars to finance health-care reform, according an independent analysis of the proposal.

A five-page presentation, obtained by FOX Business, was prepared by the chairman of the Senate Finance Committee, Sen. Max Baucus (D-Mont.), who is leading efforts by Senate Democrats to formulate funding alternatives for a reform plan. In the document, Baucus proposes “options to limit allowable tax free health benefits."

President Obama would be wise to reject this idea because it would political suicide as well as terrible blow to the economy. President Obama very famously, over and over, said that ONLY the top 5% of income earners would see their taxes rise. That's one in twenty. This proposal is one in eight.

There are promises that politicians make that they break and get away with. There are others that end their careers. You all remember when George HW Buh famously proclaimed in a debate "read my lips, no new taxes". Then, he raised taxes. Then, he got voted out.

If President Obama raises taxes on any more people than the top five percent, that would be a similar back peddle on a similar promise. Taxes are one thing that you never want to go back on your word on. The minute you start taking more money from people than promised you not only lose popularity but credibility. It's even worse for the president because he butchered John McCain during the campaign for raising a similar proposal.

Once the president's credibility is lost, it opens up all sorts of attack points for the Republicans. With deficits at unsustainable levels, the Republicans will be free to argue that other tax increases are just around the corner. The president will no doubt make a counter argument but once you go back on one promise it's hard to believe anything else you say.

Soon, the Republicans can and will paint President Obama as Michael Dukakis and Walter Mondale reincarnated with charisma. He will be painted as a typical tax and spend liberal. Those were death blows for both those candidates and they will be for President Obama.

Economically, raising taxes this many working folks during a recession or even at the beginning of a recovery is just plain asinine. Just imagine if millions of workers now have to figure out what to do about their health insurance. With millions facing increased taxes, that would stunt consumer spending. It's basic economics. Raising taxes is contractionary. We want to be expansionary. Tightening an economy that is tightening without you only perpetuates the problem. Such a move would mean an extended recession at best and a depression at worst.


Anonymous said...


On the other hand, self employed people (of whom I am one) already pay taxes on the "imputed value" of their health care benefits. In other words, my IRS 1040 has a line item entry for health care benefits received as income, and I pay taxes on this. And maybe that needs to happen, because health care really is compensation in kind instead of in cash.



Anonymous said...

I'm not sure the "no new taxes analogy holds." You talk about people who would stop believing Obama because he raised taxes, but the people to whom that matters never believed he wouldn't raise taxes anyway. Hence the protests before he even did anything. His base is practically demanding these tax increases, especially if it would pay for a public option.

mike volpe said...

Let me take both at once. Fred, you argument has some valid philosophical points though I don't like any taxes so I am all for anything that limits taxes.

As for the second, you couldn't possibly know what is in the mind of every person. You seem to be saying that it really doesn't matter what the president does because a majority of the population has been hypnotized. That's just silly. There are plenty of people that believed the president when he made that pledge that are wise enough to notice when he breaks it.

Anonymous said...

Actually his base is more likely to support eliminating the cap on FICA and the creation of a new 50% bracket on income of $1 million+

mike volpe said...

Whatever. I'm not even sure if his base wants that however, there's no way he gets majorities in the next election by going back on his promise to only raise taxes on 5%.

Falco said...

In this case I agree with you completely. I imagine he's smart enough not to go along with something so stupid (though he as been disappointing on these kinds of issues of late). A tax on employment-based health-insurance would kill that system over time, as well as turning everyone against him and rightfully so And there's no reason at all to do it--reversing the Bush tax-cuts on the rich gives more than enough money to fund a solid public option (which I'm hoping he won't give up on, but its prospects are looking more and more bleak--for no sound policy based reason in my view).