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Brooks Wilson's Economics Blog: The Forgotten Man and Health Care Reform

Wednesday, January 6, 2010

The Forgotten Man and Health Care Reform

I must admit to occasional disappointment in the economic views of Americans expressed through surveys.  Many hold normative beliefs that are different than mine, and of course mine are correct.  More importantly, many opinions appear to be based on bad economic reasoning.  As our elected representatives debate health care reform, a Rasmussen survey as of January 4, 2010 finds that 42 percent support the legislation while 53 percent oppose, but how opinions shift based on the method of funding is the basis of my disappointment.  A Rasmussen Reports article based on a national survey in "Voters Agree Only on Taxing The Rich To Pay for Health Care Plan" finds that those surveyed are more likely to support health care reform if someone else, namely the "rich," pay for it and are more likely to oppose reform if they must pay or their potential benefits are cut.
When it comes to paying for the cost of the proposed health care reform plan, voters are okay with taxing the rich but strongly reject cuts in Medicare and excise taxes on “Cadillac” health plans provided by employers.

Sixty-four percent (64%) of all voters favor imposing an income tax surcharge on individuals who earn more than $500,000 a year and couples who earn more than $1 million a year. Just 35% are opposed.

However, a proposal to enact a significant excise tax on the most expensive health insurance plans provided by employers is supported by just 32% of voters. It is opposed by 59%...

Both versions of the legislation propose reducing spending on Medicare by several hundred billion dollars. Just 33% support this approach, while 57% are opposed.
I am reminded of William Graham Sumner's essay, "The Forgotten Man," reproduced in Amity Shlaes' memorable history of the Great Depression, "The Forgotten Man..."
As soon as A observes something which seems to him to be wrong, from which X is suffering, A talks it over with B, and A and B then propose to get a law passed to remedy the evil and help X.  Their law always proposes to determine...what A, B, and C shall do for X."  But what about C?  There was nothing wrong with A and B helping X.  What was wrong was the law, and the indenturing of C to the cause.  C was the forgotten man, the man who paid, "The man who never is thought of."
Some hold the normative belief that we, meaning the rich, should insure the poor and those who do not want to buy insurance at the going price.  There is no virtue in A or B as they bemoan C's greed while taking her money to help X who is ungrateful for the payment of medical services he now claims are his entitlement.  C's opinion is ignored or unimportant.

From a positive perspective, A and B seem to have forgotten that people respond to incentives.  X, the person suffering, has no incentive to conserve on the expenditures of medical services freely bestowed on him.  If costs are to be controlled, government health care regulators must do it.  The regulators will give these committees a pleasant name like the United Kingdom's National Institute for Clinical Excellence or NICE, but after the first death of a patient denied treatment by the the medical board, even if the denial is just and medially correct for "society," will be known as a death committee by that person's survivors.  These committees will serve us all.

C and her contribution to the market economy really are forgotten.  Do A, B or X believe that C will do nothing to protect her interests?  She will invest less because her income has fallen and because of greater uncertain about her future tax burden.  The economy suffers when investment falls and the rich are an important part of investors.  If A, B, and X are lucky, some of her investment might slide into the underground economy to avoid taxation, but that will lower government tax receipts.  C might also spend more time at the beaches and ski resorts and less time working.  She might hire an accountant or lawyer to help her avoid taxes if they are not at the beaches or ski resorts because of their reduced incentive to work. 

We like the goods and services that high income earners provide including medical care.  We like the innovation that their investments fund.  We need more of them.  Why do we treat them so badly through the federal tax code?

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