Big Lizards:Blog:Entry “The Raucous Baucus Max-Tax Flim-Flam Plan”

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May 14, 2009

The Raucous Baucus Max-Tax Flim-Flam Plan

Hatched by Dafydd

Always, those in the public sector have eyed the private sector as Martians observing the Earth: "vast and cool and unsympathetic." They envy the money; gross domesic product is many times larger than the measley $3 to $4 trillion available to the feds even in the age of Obama. They envy the productivity, which puts government programs and R&D to shame. They envy the freedom of CEOs simply to make decisions -- while government bureaucrats can only write memos of recommendation and shunt them one notch up the chain of infinite regress that is the government heirarchy.

They cannot duplicate the success of Capitalism and entrepeneurship, quite naturally; those qualities are characteristic of liberty, while government is its antithesis. So as with everyone consumed by envy -- even H.G. Wells' Martians -- what they cannot duplicate they can at least destroy.

Which brings us around, by a commodious vicus of recirculation, to the Democrats and their government takeover of health care:

Senators are considering limiting -- but not eliminating -- the tax-free status of employer-provided health benefits to help pay for President Barack Obama's plan to provide coverage to 50 million uninsured Americans.

Mighty considerate of them not to offhandly eliminate it; having us that momentus favor, surely we cannot carp about a little, itty-bitty tax, can we? By the way, anent those "50 million uninsured"... the only way to reach that number is to include the huge number of young, healthy, and well-paid young workers, who voluntarily choose not to carry insurance because they think themselves indestructable.

(Thank goodness I'm finally going to subsidize them! I couldn't stand the guilt, knowing I have condemned by inaction those young adults to having to pay for what they use, just as if they were ordinary people.)

On the controversial question of taxing health benefits, [Senate Finance Committee Chairman Max] Baucus is staking out a position that could put him at odds with Obama.

The president adamantly opposed such taxes during the campaign, arguing they would undermine job-based coverage. Obama's aides now say he's open to suggestions from Congress, even if he criticized Republican presidential rival John McCain for proposing a sweeping version of the same basic idea.

Baucus said he wants to modify the tax break, not abolish it.

"We are not going to repeal it," he said.

Baucus suggested that the benefit could be limited by taxing health insurance provided to high-income individuals, although he did not specify at what income levels. He also said that plans offering rich benefits -- for example, no co-payments or deductibles -- might be taxed once their value exceeded a yet-to-be-determined threshold....

In government jargon, the tax-free status of health insurance is called the "tax exclusion."

Let's set aside the weasle words for a moment and just look at the extreme case; we can reason backwards from there. Suppose that, contrary to Baucus' (D-MT, 80%) hand-on-heart claim, he really does intend to "repeal" the "tax exclusion"... what would that mean to taxpayers?

How does it work? Your employer pays you a salary (taxed), and he also pays for your medical insurance; yes, the latter is technically "income;" but it's not really, because you have no choice in how it's spent, other than small variations that the insurance plan my allow you -- picking an HMO or a Preferred Payer Plan, for example. (The purpose of the putative tax exclusion was, of course, to encourage employers to offer such plans -- which is why nearly everybody who wants medical insurance has it today.)

Employer-provided health insurance is considered part of workers' compensation, but unlike wages, it is not taxed. The forgone revenue to the federal government amounts to about $250 billion a year.

You rich villains are stealing the government's money!

In a typical case, your employer may pay you $50,000 salary and may pay about $450 per month in health-insurance premiums; you yourself may have to pick up a smaller portion of the premium, perhaps $150 per month. That means the total payment is, let us say, $600 per month or $7,200 per year.

The employer-paid part of that ($5,400 per annum) is not taxed: The employer deducts it as a business expense and the employee doesn't have to declare it as income. If the employee itemizes his income tax (for example, if he's buying a house and wants to deduct the mortgage interest), he may be able to deduct all or part of his own share of the premiums ($1,800 per year). Thus, he doesn't have to pay tax on anywhere from $5,400 of his "income" to $7,200, depending on how much of his own payments are deductable.

Splitting the difference, he gets to "deduct" (deduct or not have to report) $6,300 from his income. Since this will clearly be a marginal deduction, it all comes out of the highest income tax he's paying (unless that drops him below the level for that tax rate). This rate is currently 35%, I believe, but the specifics are less important than the principle.

So the final tally is: The taxpayer pays $2,205 less to the government than he would were the "tax exclusion" repealed; that of course means that if it were repealed, he would have to cough up an additional $2,205 to the feds -- so that other people would get to use government-controlled health insurance for free.

Sweet, isn't it? You pay a couple grand extra per year for the privilege of having private health insurance; but if you drop it and take the government-run health care instead, you pay no extra tax. As the Romans say, "Cui bono?" Who benefits? The public sector does... at the expense of the private sector, of course: This is yet another way that ObamaCare will drive people out of private health-insurance plans and into the loving arms of Uncle Sugar.

Of course, Baucus says (yesterday) that the Democrat-controlled Congress doesn't want to completely eliminate the "tax exclusion"; they just want to levy an extra tax on some of your health-insurance premium, not all of it. So they're not actually stealing the full $2,200... just a portion.

Of course, it still means that you must pay an extra penalty for using private health insurance but not for using ObamaCare. Thus the perverse incentive for everybody to dump private insurance in favor of government-run health care remains; it's just not quite as strong as if they went the full Monte. (And who knows what they will say tomorrow? Especially as the bill-writing continues, and it becomes obvious that the numbers just won't add up.)

Democrats are trying to sell the bill as purely utilitarian:

Many experts say that Congress won't be able to come up with the kind of money needed to provide coverage for all unless limitations on the health care tax break are part of the mix.

"I don't see how you're going to put a package together ... unless you touch the exclusion," said Robert Greenstein, director of the Center on Budget and Policy Priorities, which advocates for low-income people [that is, welfare recipients].

(Note that the Center on Budget and Policy Priorities is heavily underwritten by the Democracy Alliance -- which itself is funded by George Soros and many other prominent radical lefties. Just thought you'd like to know.)

I am less and less willing to give any benefit of the doubt to this administration on any point touching politics, progressivism, liberal fascism, or attacks upon the "Right." If -- in addition to raising revenue -- a bill also tends to drive people away from a market-driven, capitalist solution and towards government nationalization of health care, I will naturally conclude that this, not revenue, is the real goal.

Some of the arguments by proponents of ~~HillaryCare~~ ObamaCare seem to be brazen attempts at misdirection:

Proponents of repealing the benefit say it encourages lavish health insurance plans that only add to waste in the health care system. And they argue that the benefit is unfair, since self-employed people don't get as big a tax break for health care.

First, who cares if some rich people are willing to pay through the nose for a plan that includes rhinoplasty? Evidently the Left does: They care so much, they want to repeal all differences in the level of medical care between rich and poor. Equality is so important to the bad stepchildren of George Soros that, instead of some having more than others, they would rather everybody be equally poor and equally miserable.

If carried to its logical conclusion, this "reasoning" leads to the destruction of all private property... the rich will have the money but be disallowed from spending any of it! The response by the rich would be to flee the country, quite obviously... taking all of their talent, drive, and money with them. This disincentivizes intelligence, courage, and entrepeneurship: Why bother starting up a company if you won't even be able to enjoy the increased money you might make?

And the second argument for government-controlled health care is even more specious: If it's true that "self-employed people don't get as big a tax break for health care," then for God's sake, give them a larger tax break! Don't take away the break enjoyed by ordinary, company-employed workers.

With every new day, everything about this administration and this Congress makes it more and more clear that they aim to fundamentally transform America away from what we have been for 220 years -- and turn us into something alien. This is not patriotic; this is unAmerican. This is French.

We must kill this bill before it kills us.

Hatched by Dafydd on this day, May 14, 2009, at the time of 7:14 AM