Health Care

Our country has one of the best health care systems in the world, but quality heath care has become increasingly expensive and unavailable to far too many people.   Almost everyone agrees that changes are needed in our health care system, including changes  to make it easier for those who are currently uninsured to obtain affordable health insurance.  There are major disagreements, however, over the role of government in regulating our health care system and in providing health insurance to its citizens.   As in so many other areas, Barak Obama and John McCain are proposing dramatically different solutions to the health care problem.    In a nutshell, Obama wants to expand the government’s existing health care programs, and McCain wants to place the responsibility on individuals, with the help of tax credits from the government, to obtain and maintain their own health insurance. 

It is difficult to analyze the solutions proposed by the two candidates without first examining the cause of many of the problems in today’s health care system.  In my opinion, many of our current problems are the result of extensive government regulation and interference.   For example, one reason health insurance is so expensive is because the states mandate the services and providers that must be covered in each policy.   The result is that many people are required to pay for coverage they don’t need or want.  Congress recently imposed another mandate on the health insurance industry when it adopted legislation requiring all insurers to provide equal coverage for physical and mental illnesses.    As a result of this new mandate, the cost of health insurance will go up for all employers who provide health insurance to their employees and for all individuals who purchase their own health insurance.   Everyone will now have to pay more for this expanded coverage whether or not they want it. 

Another reason for the high cost of health insurance is that people are not allowed to buy health insurance across state lines, which limits competition.   Still another reason is that the tax code arbitrarily provides substantial tax breaks to some people who have health insurance but not to others.   An employee of a company that provides health insurance to its employees is not required to include the cost of the health insurance in his or her taxable income.   But a large number of people are required to purchase their own health insurance with after-tax dollars, including employees of companies that do not provide health insurance, part-time employees, and people who are unemployed or retired.  In short, our current tax policies subsidize the cost of health insurance for some, but not all, citizens.   The people who are hurt the worst are non-skilled and lower income citizens who are unemployed and who do not have health insurance through their employers.  This system is grossly unfair and is a major contributor to the large number of uninsured people.   

Amazingly, having created this grossly unfair system, our politicians are scratching their heads and trying to figure out why so many people do not have health insurance.   Rather than addressing the inequities in the current system, Obama wants to maintain these inequities and at the same time to expand the government’s involvement in health insurance.  His approach relies heavily on more government mandates, regulations and subsidies.   He would require employers to provide insurance for their employees or to pay a penalty equal to some percentage of their payroll for not doing so.   The funds generated by the penalty would go into a national fund to provide insurance to those uncovered workers.   The Cato Institute studied Obama’s plan and concluded that employers will “seek ways to offset the added cost by raising prices (the most unlikely solution in a competitive market), lowering wages, reducing future wage increases, reducing other benefits (such as pensions), reducing hiring, laying off current workers, or outsourcing.    It said “the most likely outcome will be greater unemployment for workers whose lack of skills does not justify the increased cost.”   

Obama also would substantially increase regulation of the insurance industry.   In my view, more government regulations will only drive up the cost of health care for everyone.  Government regulations are responsible for many of the problems we are experiencing today, so why would we want more government regulation?   

Unlike Obama, McCain would rely on the free market to solve the problems in our current health care system.   McCain would change the tax code to level the playing field and treat everyone alike.  He would move away from our current employment-based system to a system where every individual would purchase and own his or her own insurance and would get a $5,000 credit (for families) or a $2,500 credit (for individuals) to be applied against taxes owed.   In exchange for the tax credits, employees who receive health insurance through their employers would be taxed on the value of their health insurance benefit.   Most people with employer-provided insurance would come out ahead under McCain’s plan.   Here is the way it was explained in the November 2008 issue of Kiplinger’s Personal Finance: 

“McCain would change the rules to give everyone a tax break.  If your employer plan now costs $13,000 (about the average for family coverage), counting that amount as taxable income would cost you $3,250 in additional federal taxes.  But families would get a refundable $5,000 tax credit ($2,500 for individuals) to help purchase insurance, either through an employer or an individual plan.  The change could encourage more people to buy individual policies, which they could take with them even if they left their job.  And as long as you keep an individual policy, your insurer generally cannot raise your rates because of your health.” 

The McCain plan would provide individuals with more choices and with more job mobility because workers who purchased their own insurance would not need to stay in a job to keep their health insurance.   The McCain plan would also allow people to purchase insurance across state lines.    Rather than adding new regulations, McCain would deregulate the insurance industry in an effort to increase competition.  

The Executive Summary of the Cato Institute’s study of the health care plans proposed by McCain and Obama contained the following conclusion: 

“Senator McCain’s proposal is far from perfect, but from a free-market perspective, it appears superior to Senator Obama’s plan.   Obama’s plan, with its heavy reliance on government, leads to the same problems that bedevil universal health care systems all over the world:  limited patient choices and rationed care.  McCain’s proposal is much more consumer centered and taps into the best aspects of the free market.” 

Health care experts Robert Moffit and Nina Owcharenko reached similar conclusions after analyzing the Obama and McCain plans for the Heritage Foundation.  They said Obama’s plan would concentrate health care decision-making in Washington and “would likely precipitate a rapid evolution toward a federal monopoly over the health care sector.”    Moffit and Owcharenko said Obama’s top-down plan would result in a "standardized federal health benefits structure, a massive expansion of federal regulatory authority over health insurance, and an enlargement of federal regulatory power over health care delivery."   In contrast, they said McCain’s plan “is underscored by a principled commitment to personal freedom” because it “would advance greater personal choice and control in the health care system.”

As I see it, the Obama plan would be best for those of you who are willing to turn more responsibility for your health care over to the government.  I think the McCain plan would be best for those of you who want to retain maximum personal responsibility for your own health care and who want more choices and greater portability for your health insurance coverage.   For me, I strongly prefer the McCain approach. 

Dueling Tax Philosophies

There is a stark contrast between the tax plans being proposed by John McCain and Barak Obama.    There is no need for me to go into the details of each candidate’s tax plans.   If you are interested in the details, go to the campaign website for each candidate.  Links to the campaign websites are available on the right side of this page.    

McCain says he does not want to raise anyone’s taxes.   Obama says he will raise taxes only on the richest Americans and that 95% of “working families” will actually receive tax cuts under his plan.  Obama believes the richest Americans are not currently paying their fair share of taxes and should pay more. 

I would like to address four questions relating to taxes.   First, what should be the purpose and philosophy behind the federal government’s tax policies?    Second, what is the likely effect of implementing the different tax policies proposed by the two candidates.   Third, are the richest Americans currently paying less than their fair share of the total tax burden?    Fourth, will 95% of “working families” receive tax cuts under Obama’s plan as he claims?  

What should be the purpose and philosophy behind the federal government’s tax policies? 

The purpose of taxation in my opinion should be to provide the government with the income it needs to perform essential government services in a manner that is fair to all citizens and in a manner that promotes rather than stifles economic growth.  I do not have a problem with progressive tax rates, which we have today, under which higher levels of income are taxed at higher rates.   I do not agree, however, that fairness requires the use of taxes to redistribute income from those who have earned it to those who have not.   I strongly disagree with Obama’s philosophy, as articulated to the now famous Joe the Plumber, that tax policies should be designed to “spread the wealth around”. 

What is the likely effect of implementing the different tax policies proposed by McCain and Obama? 

The government’s tax policies can have the effect of stimulating the economy and encouraging growth, which benefits everyone, or of discouraging the savings and investment that is necessary for businesses to grow and for new jobs to be created.

In my opinion, Obama’s proposed tax increases on the richest Americans would substantially weaken an already weak economy.   If Obama becomes President and imposes an even heavier burden on the “rich,” I believe the “rich” will find ways to ease the burden, and the result will be less overall government revenue.   Moreover, there is an abundance of historical evidence to the effect that increased taxes result in less money available for investment and job creation whereas reduced taxes stimulate the economy and lead to increased government revenue.  Do you think you can reduce the incentives for people to work hard, invest, and create jobs without affecting hard work, investment, and job creation?    I don’t.    For me, I would rather let the “rich” keep their money and invest it than require them to send even more of their money to the government.  If you want more of something, like investment and job creation, you tax it less.  If you want less of something, you tax it more.  It’s as simple as that. 

The Heritage Foundation’s Center for Data Analysis (the “CDA”) conducted an economic analysis of the tax policies proposed by McCain and Obama.  The Heritage experts made the following conclusions after comparing the plans proposed by McCain and Obama: 

(1)    More jobs will be created under the McCain plan than under the Obama plan.  The CDA concluded that job growth over a ten-year period would be more than twice as high under McCain's plan than under Obama's.  It estimated that total annual employment would grow an average of 915,800 jobs under Obama, and by 2,126,000 under McCain. 

(2)    Overall economic activity will be more vigorous under McCain's plan.  The CDA concluded that McCain's plan would yield consistently higher forecasts of economic output than Obama's.  Increases in gross domestic product would be nearly three times higher, on average, under McCain’s plan than under Obama’s. 

(3)    There would be more after-tax spending potential under McCain’s plan than under Obama’s.   Using the same model to evaluate both plans, the CDA analysis showed that a family of four would have an average of $5,138 more in disposable income under McCain's plan, and $3,631 more under Obama's. 

If you think the primary objective of tax policies should be fairness and redistribution of wealth, then the Heritage Foundation’s conclusions will not be important to you.   If you think the primary objective of tax policies should be economic progress, then the Heritage Foundation’s conclusions are probably consistent with your common sense. 

Are the richest Americans currently paying less than their fair share of the total tax burden?  

Obama and his fellow Democrats want you to believe that the Bush tax cuts in the early part of this decade favored the rich and that the rich are not currently paying their fair share of the total tax burden.    Let’s take a look at the facts and then you can draw your own conclusions.   The facts are that the top 1% of taxpayers paid 40% of all income taxes in 2006 (the highest share in the last 40 years), the top 10% paid 71% of all taxes, and the top 50% paid 97.1% of all taxes.   The rich, of course, paid more taxes because they earned more income.  The top 1%, for example, earned 22% of the income but paid 40% of the taxes.   The bottom 50% earned 12% of the income but paid only 3% of the taxes.  

According to the Tax Policy Center, in 2008, the average combined rate of federal income, payroll, and estate taxes will be 1.1% for the lowest 20% of the income distribution, 15.1% for the middle 20% of income distribution, and 26.2% for the highest 20%.   The Tax Policy Center estimates that in 2008 the top 20% of income earners will pay 87.5% of all income taxes and 39.9% of all payroll taxes.   These figures, of course, do not reflect the tax increases being proposed by Obama.  

If you examine the facts, it is clear that we already have a steeply progressive tax code without the new taxes that Obama wants to impose on the rich.   Do you think the top 1% of taxpayers should pay more than 40% of all income taxes or that the top 20% should pay more that 87.5% of all income taxes?  What is your definition of fairness?    Where would you draw the line? 

In discussing taxes, it is important to recognize the difference between income taxes and payroll taxes.    Income taxes are designed to provide the government with the revenue that it needs to operate.    Payroll taxes represent a mandatory retirement savings plan—the Social Security system—administered by the government.    The philosophy behind payroll taxes is that you pay money into the system while you are working and receive Social Security benefits when you retire.  The amount of your Social Security benefits upon retirement is based upon the amount that you paid into the system while you were working.   Obama has proposed an additional payroll tax on individuals with annual income above $250,000 to help fund the government’s Social Security obligations.  He has not said, however, whether additional benefits would be paid to these individuals upon their retirement.  As discussed below, Obama also has proposed to send checks in the form of “refundable tax credits” to people who pay payroll taxes but have no income tax liability.   These individuals presumably would not receive reduced Social Security benefits upon retirement.   In short, Obama’s plan would fundamentally change the philosophy that has governed the Social Security system since it was created in 1935.   

Will 95% of “working families” receive tax cuts under Obama’s plan as he claims?  

The short answer is no.   Obama’s claim that 95% of  “working families” will receive a tax cut under his plan is misleading and dishonest.     For starters, approximately 40% of the citizens who file income tax returns are not paying any federal income taxes under the current system.   How do you give a tax cut to someone who does not pay income taxes?   Obama would give “refundable tax credits” to people who pay no income taxes.   He refers to these “refundable tax credits” as tax cuts.  A “refundable tax credit” is a transfer of money from someone who is paying taxes to someone who is not.   

In an editorial dated October 13, 2008, The Wall Street Journal described a “refundable tax credit” as “Washington-speak for the fact that you can receive these checks even if you have no income-tax liability.  In other words, they are an income transfer—a federal check—from taxpayers to nontaxpayers.  Once upon a time we called this ‘welfare’…  Mr. Obama’s genius is to call it a tax cut.” 

I have two problems with Obama’s plan to send government checks to people who do not pay income taxes.   The first is that Obama is being deceptive by promising “tax cuts” to people who don’t pay income taxes.   In reality, the tax cuts described by Obama are not tax cuts but are part of his plan to use the tax code to “spread the wealth around.”   I would be more sympathic to Obama’s plan if he would be honest about it rather than trying to fool the American people.   My second problem is that I do not believe Obama’s plan will work for the reasons outlined in a column written by Arthur B. Laffer and Stephen Moore and published in The Wall Street Journal dated September 15, 2008.   After summarizing their study of Census Bureau data on income and poverty, Mr. Laffer and Mr. Moore reached the following conclusion:  

“Taking from the rich through much higher taxes in order to help the poor and middle class makes no sense intellectually and has seldom worked in practice.   Reducing rates, on the other hand, does increase the share of taxes paid by the highest income-earning group……  We suspect that Mr. Obama will discover that when you put ‘tax fairness’ ahead of economic progress, you produce neither.” 

The Bottom Line 

Here is what worries me the most about Obama’s tax plans.  We already have a system under which approximately 40% of the citizens who file income tax returns are not paying any income taxes.   Under Obama’s tax plans, this percentage will increase and, in addition, many of those who do not pay income taxes will receive a check from the government.  You can call this check whatever you want—a rebate, a refundable tax credit, a subsidy, welfare or any other label you prefer.   Regardless of the label, we are rapidly approaching the point where the majority of the voters in this country will not pay income taxes, and many of them will receive a check from the government instead of sending a check to the government.  

As George Bernard Shaw once said, “A government that robs Peter to pay Paul can always depend on the support of Paul.”   We will soon have more “Pauls” than “Peters.”    How long do you think a system like this can survive?    It may survive for my lifetime, but I don’t see how it can survive for the lifetimes of my children and grandchildren.   Maybe you don’t care, but I do.  I love this country, despite all its faults, and I hope and pray that it will continue to prosper as a beacon of freedom in the world.   Votes have consequences.   Your vote in this election could well determine the future of the United States of America.    

Another Gift From Joe

For the second time in less than a week, John McCain’s floundering campaign received a gift yesterday from a guy named Joe.   This time the gift came from Joe Biden, Barak Obama’s running mate, instead of from Joe the Plumber, who asked the question to Obama that produced last week’s gift. 

Here is what Joe Biden had to say at a fund-raising function Sunday night: 

"Mark my words.  It will not be six months before the world tests Barack Obama like they did John Kennedy.  The world is looking.  We're about to elect a brilliant 47-year-old senator President of the United States of America.   Remember I said it standing here, if you don't remember anything else I said.  Watch, we're going to have an international crisis, a generated crisis, to test the mettle of this guy.   I promise you it will occur.  As a student of history and having served with seven presidents, I guarantee you it's going happen.   I can give you at least four or five scenarios from where it might originate."

After realizing what he had said, Biden, who has a reputation for sticking his foot in his mouth, added, "I probably shouldn't have said all this because it dawned on me that the press is here."  Notice he didn’t say the statement was wrong—only that he shouldn’t have made the statement in the presence of the news media.

As you may recall, Biden was selected as Obama’s running mate because he is a foreign policy expert and has extensive knowledge and experience in international affairs.   So here we have Obama’s running mate and foreign policy expert guaranteeing the American public that we will have a major international crisis if Obama is elected President because the bad guys will want to test Obama’s mettle.   If Biden is the foreign policy expert that Obama and his supporters claim that he is, then we need to take his prediction seriously.   With the guarantee of an international crisis, are we supposed to vote for Obama with the hope that he will rise to the occasion?    Does it occur to you that it might be best to avoid the need for a guaranteed international crisis by electing a President who would not need to be tested because the bad guys would know how he would react?    Think about it before you cast your vote.

If a Republican had made Biden’s comment, he or she would have been crucified by the news media and by the members of the Obama campaign.    Because the comment was made by Biden, the media will probably pay little attention to it.

McCain and Biden have both talked on numerous occasions about their long-term friendship and respect for each other.    It appears to me that the Vice Presidential candidate who is helping McCain the most is Joe Biden.    Perhaps their friendship is genuine after all.   

The Current Federal Tax Code

Our current federal tax laws are a national disgrace.    The federal tax code and the accompanying regulations consist of some 67,500 pages.   Billions of dollars are spent each year by businesses and individuals who are required to employ lawyers, accountants and other tax experts to help them comply with the ever-changing tax laws.    Politicians for years have run for office on the promise they would simplify the tax code, but each year the tax laws get longer and more complicated.  

Our federal tax laws are so complicated that even tax experts cannot comply with them.   Numerous studies have shown that different tax experts come up with different answers to common tax questions.   The Treasury Inspector General for Tax Administration, an independent oversight arm of the Internal Revenue Service, recently conducted a study and found that nearly two out of three commercial tax preparers who are not registered with the IRS—the majority of all tax preparers—failed to fill out accurate federal returns for their clients. 

Our tax laws are overly complicated for a simple reason.  Politicians use the tax laws as a tool to reward their favorite constituents by giving them special tax breaks.   The favorite constituents are usually those who make the largest contributions to the politicians.   It is legalized bribery.  A lobbyist for a special interest group gives money to a politician who in turn sponsors legislation to give tax breaks to the interest group. 

Although we live in a society that frowns on almost any type of discrimination, we have been willing for years to tolerate tax laws that are full of provisions specifically designed to discriminate in favor of one group of taxpayers and against another group of taxpayers.   A taxpayer who owns his own home, for example, gets to deduct the interest paid on his or her mortgage whereas a taxpayer who cannot afford to own a home, or who does not wish to own a home, does not get a corresponding tax break for the rent he or she pays to lease a home.    Another example relates to health insurance.    A taxpayer who receives health insurance as a benefit of employment generally does not have to pay taxes on the value of the health insurance benefit.    On the other hand, taxpayers who are unemployed or retired or do not have employer-provided health insurance are required to pay for their own health insurance with after-tax dollars. 

The tax laws are frequently used to benefit a very narrow class of taxpayers.   The class may be so narrow that it includes only one taxpayer.   A splendid example occurred when Congress recently approved the highly publicized $700 billion bailout—excuse me rescue—package in an effort to alleviate the financial crisis facing the country.    In order to get the votes necessary to approve the bailout package, a number of special provisions were inserted at the request of various lawmakers.    One such provision granted an exemption from a federal excise tax on children’s wooden arrows manufactured by a company in Myrtle Point, Oregon called Rose City Archery.     

In my opinion, the existing tax laws need to be abolished in their entirety, and we need to start all over with a new simplified and much fairer tax system.   Many alternative tax systems have been proposed, including the fair tax, a flat tax, a consumption tax, and a national sales tax.   I have not studied these alternative systems enough to have an intelligent opinion regarding which one would be best.    All I know for sure is that an entirely new system is desperately needed.   I also know that politicians would lose a lot of power—and a lot of campaign contributions—if they gave up their ability to grant special tax breaks to favored individuals or groups. 

Unfortunately, neither John McCain nor Barak Obama has promised to overhaul the current tax system if elected President.    McCain has promised a simpler and fairer tax system without being very specific about what he means.   Obama has also promised a fairer tax system by which he means more of the same with new and different tax breaks for the groups that he favors.   I would prefer a candidate who would agree to abolish the current system in its entirety and implement a new system that would eliminate the ability of politicians to use the tax laws to reward some citizens and punish others. 

When I filed my last federal tax returns this past spring, I wrote separate but identical letters to the two U.S. Senators from Georgia and to the Congressman who represents the district where I live.   Here is what my letter said: 

Dear _________________:   

Happy Tax Day.    As I write this letter, I am wondering if you are working hard to complete your tax returns in order to meet today’s deadline.   My guess is that you are not.   I suspect there are few, if any, members of Congress who prepare their own tax returns.   I further suspect that few members of Congress are even capable of doing so. 

I have read that our tax code now consists of 67,500 pages, and it is continuing to grow.  This is outrageous.   This is absurd.   This is ridiculous.    

After spending many hours working on my own tax returns, I finally reached the point where it was time for me to calculate my tax liability.   I am enclosing a copy of the tax liability worksheet.    After completing this worksheet, I then had to start all over and do another calculation in order to comply with the rules for the alternative minimum tax.    I am enclosing a copy of Form 6251, which is required for this purpose.  My guess is that most members of Congress have never even read the tax liability worksheet or Form 6251.  This is why I am sending copies of these forms to you.  Please study these forms and give me your opinion regarding how many members of Congress could complete them without assistance. 

Our tax system is a disgrace.   Because you are [one of my representatives in the United States Senate] [my representative], I am requesting that you do something to simplify our tax system.     Here is my proposal.   Start by introducing legislation (i) requiring all members of Congress to prepare their own tax returns and to certify under penalty of perjury that they have done so, and (ii) imposing penalties, including imprisonment, upon any member of Congress who makes a mistake in preparing his or her returns.        

Sincerely, Walter M. Grant