Taxed Beyond Belief

President Obama announced plans this week to make national health care available to American families. He has worked with the House Democrats to begin crafting a bill that would finance the costs of his plan. The price tag on this plan is an estimated $1 Trillion to $1.6 Trillion dollars over 10 years.

How does he plan on financing his plan? Increases in taxes. During his campaign, he promised he would only increase taxes on the wealthiest families in the U.S.; but not even the proposed 2% income tax on individuals earning more than $200,000 and families earning more than $250,000 alone will pay for his plan. The House Democrats have been throwing around additional revenue sources including (1) collecting a 10 cent per can soft drink tax, (2) collecting a 3% new employer payroll tax on health care expenditures, (3) collecting taxes on employer-provided benefits above specified levels, (4) increasing payroll taxes for Medicare and Medicaid, and (5) implementing a 1.5% national sales tax.

Aren't we taxed beyond belief already? The proposed taxes will affect everyone. Let me say that again; everyone, not just the wealthy. This bill will take more money out of everyone's pocket before the money is ever deposited into your account (with an increase in the Medicare and Medicaid tax) and then will take more money out of your pocket if you have to pay an additional 1.5% on everything you buy.

My wife does like her diet sodas. Should I really have to pay an additional 10 cents for each can of Diet Coke that we buy? That's an additional $2.40 per case. But I wont pay all of the tax. The tax will have the intended consequence of decreasing the amount of soft drinks people consume. So according to economics, this tax will decrease demand for soft drinks, which will also decrease the retail price of soft drinks in order to maintain pre-tax demand. Essentially, the consumer and the producer (Coca-Cola for example) of the product will both "eat" part of the tax. It's just another way to hurt business in America.

I assume with Middlesboro having it's own Coca-Cola plant, this will definitely have a negative impact on the local economy. I mean, how many baseball teams has Coca-Cola sponsored for the youth of the area? Countless. How much money have they reinvested in the community? Tons. So now with this potential additional tax on Coca-Cola's primary product, what will happen with their philanthropy in the area? Will it just decrease their overall charitable giving or will Coca-Cola no longer be able to afford to continue their philanthropy? What impact will this have on schools that rely on vending contracts with soft-drink companies to supplement their operating budget? A negative one, I assure you.

The tax on employer provided benefits will have a similar effect. Implementing a tax on employer-provided benefits (something that has never been done) will help to increase the costs of employer provided health care. Employers will not eat this tax, but rather pass cost increases to employees through higher health care premiums. This is a tax on those who were able to find a good job that included fringe benefits.

My biggest complaint with this plan is that President Obama and the Democratic party are planning on overhauling the total health care system to ensure those individuals who fit in the gap (between those covered by Medicaid and Medicare and those with employer provided benefits) have health insurance coverage. This is a very noble idea, but I think the President can utilize currently existing health care options to fill this gap.

There has already been talk in the Senate Finance Committee of making federal subsidies available to help families who are up to 300% above the federal poverty level purchase health insurance (an attempt to garner Republican support).

In my opinion, a brilliant alternative would be to provide federal incentives for states to work in conjunction with the Center for Medicare and Medicaid Services to expand Medicaid coverage to those who fall somewhere in the gap (even up to 300 or 400% of the federal poverty level). Some states have already taken this initiative and moved close to the 300% FPL benchmark. Providing incentives for states to take this route will allow states to provide additional coverage through preexisting programs and help minimize any administrative costs for a completely new federal program. Costs would further be minimized for a national health care program when you include the states that already offer an expanded Medicaid program.

And a quick note about the program; much like the way private or employer-provider insurance companies operate, any expanded Medicaid program is normally partially financed with user fees and copays that are determined on a sliding-scale (or income-based) basis. This would also target the users of an expanded health care program rather than forcing non-users to fund the program. Further, states normally fund their expanded Medicaid programs by diverting Tobacco Master Settlement Aggreement dollars and implementing increases in sin taxes. This further helps to target those most likely to use the health care system.

And much like President Obama has been advocating, providing coverage to those without health care will help reduce the health care system's overall costs (specifically unpaid trips to the emergency room for basic health care needs).

We can't teach people how to better manage their money and provide for essentials first, but at least with an option like this we can make it easier for those with limited income to obtain coverage, reduce the costs of health care, and at the same time minimize the total costs to the American tax payers.