Over the weekend, I discussed three ways to relieve our tax hangovers. I pointed out our country’s best-kept fiscal secret:
In 2012, Americans enjoyed the lowest tax burdents as a share of our national economy of any developed country in the world, according to the Organization for Economic Co-operation and Development (or OECD).
Yet despite our having lower tax burdens than other developed countries, Americans feel considerable tax pain. I explore three reasons for this paradox in my post.
But I’m not here to rehash that argument. Instead, I want to address a criticism that arises in the very first comment to my post. (And, yes, I do realize that as a general rule, reading comments is an excellent way to spoil one’s dinner. But bear with me. This is important.)
Everyone else gets free healthcare. We, as a nation, spend nearly $3 trillion on healthcare, nearly 2/3’s privately. Kind of like comparing apples to rocks.
This comment is interesting because it asserts as an obvious truth a claim that actually is much more complex, in ways that go directly to my points about tax expenditures and our confusion about the goods and services we get from government.
The first answer, of course, is that this comment is beside the point (or “orthogonal,” in academic speak), since it doesn’t address the tax paradox of why people feel so much tax pain, as opposed to feeling generally budget constrained.
But the more interesting point is that this comment to my mind lies at the heart of President Obama’s original failure in selling the Affordable Care Act to Americans. In fact the federal government spends close to $300 billion/year through tax expenditures alone to subsidize health care costs. (“Tax expenditures” is budget-speak for government spending programs that are baked into the tax code, and are therefore visible only as reduced tax collections.) The biggest tax expenditure is the fact that employees are not required to treat the health insurance premiums that their employers pay on their behalf as taxable income.
Some commenters like to pretend that the concept of a tax expenditure (for example, the deductibility of home mortgage interest expense) is just a rhetorical device, because there somehow is a difference between “keeping what’s mine” and instead paying extra tax and getting an equivalent subsidy. If there is such a difference, it’s not visible in your checkbook balance. More generally, the reason that the tax law allows some taxpayers sometimes to “keep what’s theirs” (through a deduction for a personal expense, for example) is that the tax law requires other taxpayers to fund the missing tax revenues. So if you keep what’s yours, it’s because I am paying for you to be able to do so!
And of course the “keeping what’s mine” meme falls completely on its face when it comes to the fact that the federal government subsidizes every employer sponsored health insurance program in the country.
Imagine a world in which cash salary is taxable income, but free TVs from an employer are tax exempt. Most of us would ask for the biggest TV we could fit into our houses, even if the employer reduced our cash salaries by the cost of the TVs, because there’s no tax cost to us in getting TVs. Meanwhile, those of us not working at employers with free TV bonus programs would be left to pay the bill in the form of more taxes.
That’s what happens with health insurance today. We implicitly demand really big “free” employer sponsored health plans, because in fact that is cheaper after-tax than getting equivalent cash compensation and then going out to buy a policy. Those of us not covered by such programs pay the taxes for those getting the hidden government subsidy.
And of course there’s also plenty of direct government spending on programs like Medicare and Medicaid, which are heavily subsidized. It is well-known, for example, that the average Medicare recipient today will receive benefits that are a multiple of what she could expect were Medicare actually run on an actuarially fair basis. We all subsidize the program through the regular taxes we pay that make up the shortfall.
The result is that, even leaving aside the new programs in the Affordable Care Act, almost every American with health insurance of some kind is receiving either a federal tax subsidy or direct subsidized federal health insurance, yet most Americans have not internalized this fact.
I recently testified before the United States Senate Budget Committee that the United States is the most profligate per capita health care spender in the world, but that our outcomes do not reflect this.
If we in fact reduced our health care spending for each American to what the second-highest country (Norway) spends on each of its citizens (including both public and private spending), we would save $880 billion per year! Even more remarkably, our government spending on health care by itself (including tax expenditure spending) is only slightly below what Norway spends for its entire universal health care system.
There must be a better way. . . .
Tags: health care, medicare, taxes, kleinbard, tax expenditures
Yes, Hard-Working Red-Stater, the Government Is Subsidizing Your Health Insurance
Over the weekend, I discussed three ways to relieve our tax hangovers. I pointed out our country’s best-kept fiscal secret:
Yet despite our having lower tax burdens than other developed countries, Americans feel considerable tax pain. I explore three reasons for this paradox in my post.
But I’m not here to rehash that argument. Instead, I want to address a criticism that arises in the very first comment to my post. (And, yes, I do realize that as a general rule, reading comments is an excellent way to spoil one’s dinner. But bear with me. This is important.)
This comment is interesting because it asserts as an obvious truth a claim that actually is much more complex, in ways that go directly to my points about tax expenditures and our confusion about the goods and services we get from government.
The first answer, of course, is that this comment is beside the point (or “orthogonal,” in academic speak), since it doesn’t address the tax paradox of why people feel so much tax pain, as opposed to feeling generally budget constrained.
But the more interesting point is that this comment to my mind lies at the heart of President Obama’s original failure in selling the Affordable Care Act to Americans. In fact the federal government spends close to $300 billion/year through tax expenditures alone to subsidize health care costs. (“Tax expenditures” is budget-speak for government spending programs that are baked into the tax code, and are therefore visible only as reduced tax collections.) The biggest tax expenditure is the fact that employees are not required to treat the health insurance premiums that their employers pay on their behalf as taxable income.
Some commenters like to pretend that the concept of a tax expenditure (for example, the deductibility of home mortgage interest expense) is just a rhetorical device, because there somehow is a difference between “keeping what’s mine” and instead paying extra tax and getting an equivalent subsidy. If there is such a difference, it’s not visible in your checkbook balance. More generally, the reason that the tax law allows some taxpayers sometimes to “keep what’s theirs” (through a deduction for a personal expense, for example) is that the tax law requires other taxpayers to fund the missing tax revenues. So if you keep what’s yours, it’s because I am paying for you to be able to do so!
And of course the “keeping what’s mine” meme falls completely on its face when it comes to the fact that the federal government subsidizes every employer sponsored health insurance program in the country.
Imagine a world in which cash salary is taxable income, but free TVs from an employer are tax exempt. Most of us would ask for the biggest TV we could fit into our houses, even if the employer reduced our cash salaries by the cost of the TVs, because there’s no tax cost to us in getting TVs. Meanwhile, those of us not working at employers with free TV bonus programs would be left to pay the bill in the form of more taxes.
That’s what happens with health insurance today. We implicitly demand really big “free” employer sponsored health plans, because in fact that is cheaper after-tax than getting equivalent cash compensation and then going out to buy a policy. Those of us not covered by such programs pay the taxes for those getting the hidden government subsidy.
And of course there’s also plenty of direct government spending on programs like Medicare and Medicaid, which are heavily subsidized. It is well-known, for example, that the average Medicare recipient today will receive benefits that are a multiple of what she could expect were Medicare actually run on an actuarially fair basis. We all subsidize the program through the regular taxes we pay that make up the shortfall.
The result is that, even leaving aside the new programs in the Affordable Care Act, almost every American with health insurance of some kind is receiving either a federal tax subsidy or direct subsidized federal health insurance, yet most Americans have not internalized this fact.
I recently testified before the United States Senate Budget Committee that the United States is the most profligate per capita health care spender in the world, but that our outcomes do not reflect this.
If we in fact reduced our health care spending for each American to what the second-highest country (Norway) spends on each of its citizens (including both public and private spending), we would save $880 billion per year! Even more remarkably, our government spending on health care by itself (including tax expenditure spending) is only slightly below what Norway spends for its entire universal health care system.
There must be a better way. . . .
Tags: health care, medicare, taxes, kleinbard, tax expenditures