WaPo: House health-care surtax “bad policy”
posted at 1:36 pm on July 15, 2009 by Ed Morrissey
Count the Washington Post editors as opposed to a “soak the rich” tax scheme to fund health-care reform. While the Post argues that the tax code should be made more progressive than it is currently, the idea of an “ad hoc” surtax strikes them as a tremendously bad idea — and unlikely to work in any case. The Post apparently has more familiarity with dynamic tax analysis than either the House or the Obama administration, although they’re advising Obama to treat the rich as a rainy-day fund rather than adopt a sensible tax policy:
The traditional argument against sharp increases in the marginal tax rates of a very narrow band of Americans is that it could distort their economic behavior — most likely by encouraging them to put more of their money into tax shelters as opposed to productive investments. This effect could be greatest in certain states, such as New York, where a higher federal rate would add to already substantial state income taxes. The deeper issue, though, is whether it is wise to pay for a far-reaching new federal social program by tapping a revenue source that would surely need to be tapped if and when Congress and the Obama administration get serious about the long-term federal deficit.
That moment may be approaching faster than they would like. Even if Congress pulls off a budget-neutral expansion of health care, the gap between federal revenue and expenditures will reach 7 percent of gross domestic product in 2020, according to the Congressional Budget Office. And that’s assuming that the economy returns to full employment between now and then. The long-term deficit is driven by the aging of the population as well as by growing health-care costs, both contributing to Social Security and Medicare expenses. There is simply no way to close the gap by taxing a handful of high earners. The House actions echo President Obama’s unrealistic campaign promise that he can build a larger, more progressive government while raising taxes on only the wealthiest.
There are a couple of threads here. First, the Post seems not to understand what it writes as it writes it. They note that tax increases will change economic behavior, which will negatively impact the expected revenues from the surtax. In other words, people will show less taxable income by avoiding capital gains and using other tax constructs. All that is true, but then the Post turns around and says that taxing the rich now will mean not getting them to cover the skyrocketing deficits down the road. They’re making the same case for a tax increase on the so-called rich to plug budget holes as Charlie Rangel made to cover health-care reform, apparently blissfully unaware of the irony.
This is part of the entire problem with the “progressive” tax system. It punishes people for success and is at its most basic a real consequence of a grievance mindset, in which life is a zero-sum game and winners “steal” from losers. As the economy itself has proven consistently, real wealth expands and standards of living increase for the entire population when capital is allowed to work in the markets. Soaking the rich reduces that capital and stymies the expansion of wealth and creation of new jobs. Government does not create wealth; it eats it, in some cases for good reason (national defense, for example) but too often for the kind of social engineering that inevitably makes matters worse.
Nowhere in the Democrats’ plan do they explain why 2.1 million Americans should have to pay to reform the health-care system for 300 million Americans, nor does the Post explain why 2.1 million Americans should have to pay for the massive deficits created by Democrats in Congress and Barack Obama. Both accept the notion that government exists to transfer wealth without explaining at all the basis for a free government to do so. If we need massive health-care reform, then the costs should be borne by everyone — and when that happens, you will find massive health-care reform to be a lot less popular than when Obama, Rangel, & Co try to pass it off as something for nothing.