Thursday, July 16, 2009

Redistribution disguised as health care reform 

The Tax Foundation makes the new health care plan quite simple.

Let's begin with the assumption that government is going to pursue health care reform in a way that expands the role of government in that market. Let's even assume that such a policy is truly correcting a market failure in a positive way. From a public interest perspective, there are some possible market failure justifications for this intervention, the key ones being: (1) paternalism, (2) public health, (3) lack of adequate competition in health care market, (4) adverse selection, moral hazards and other similar market failures, and (5) redistribution.

But from a benefit principle perspective, none of the first four justifications would seem to imply that only those tax returns earning more than $350,000 in adjusted gross income should pay for those supposed benefits.

Therefore, the only argument you can really make for the very rich being the sole group to finance greater health care expansion is if you believe that the current level of income redistribution from the very rich to the non-very rich is not large enough.

Combined with the expiration of the Bush tax cuts next year, " the surtax would drive the top federal tax rate to 45 percent, the highest level since lawmakers rewrote the tax code in 1986," says the Washington Post.
"Tax is a four-letter word" with voters, said Sen. Ben Nelson (D-Neb.). Even families not ranking in the top 1 percent of earners "hope they're going to be there someday," he said. "So they don't necessarily think it's fair."