It seems that the Obama Administration is set on using age-old populist talking points in an urgent effort to push through health-care reform. Of course, there is no time to waste, as the United States is in a dire health-care crisis. Time does not permit Congress to have a legitimate debate and devise a well-crafted solution to a very complex problem. This matter is too time sensitive; therefore, anyone who disagrees with the President’s vision will be asked to leave the debate table – bipartisanship (and tyranny) at its finest! (1) After all, who needs bipartisanship when the solution is so simple? All the government needs to do is make millionaires pay for the country’s healthcare. Silly free-market advocates!
In all seriousness, America’s healthcare system desperately needs an overhaul. That is an undeniable truth. However, there is a much better approach than methods that have been historically proven to fail.
President Obama’s plan will impose a surtax of 5.4 percent on couples earning more than $1 million. The term “millionaires” in the title of this column was put in quotes for a reason – the reason being that Democrats define the term “millionaire” in a different manner than most. This plan will also tax people who do not come close to earning $1 million. Households that earn $350,000 or more will also be taxed. The Administration estimates that the surtax will generate an additional $544 billion over a ten-year time period. (2)
There are several problems with the “tax the rich” approach that has been championed by the left for decades.
First and foremost, history has shown us that raising taxes during a period of recession has very negative consequences. Two famous examples are former Preisdents Herbert Hoover and Franklin D. Roosevelt. One can argue that the Great Depression may not have been so “great” had taxes not been raised and if the government did not put a regulatory stranglehold on business.
Second, millionaires are mobile – just ask state legislators who have implemented the most progressive tax scales. People have fled high-tax states such as New York, California, Illinois and Ohio in favor of tax-friendlier states like Tennessee, Florida and Texas. Wealthy Americans can also flee (from an investment standpoint) the United States just as easily as they can move from California to Texas.
Third, there are just not enough wealthy people in the United States to soak. Folks that had earnings in the $153,000 range in 2006 did better than 95 percent of Americans. In order to be in the top 1 percent, one’s income had to exceed $388,000. (3) President Obama plans to tax people who have incomes in excess of $350,000, which means he expects about the top 1.5 percent of income earners to pay for the cost of his new plan. It doesn’t take a mathematical genius to see that this simply does not add up.
Fourth, taxing the wealthy inhibits job growth. It is very perplexing that the Obama Administration does not subscribe to theory of empowering those who have the financial means to invest money and create jobs, as opposed to the government, as the way out of a malevolent recession. What is even more bewildering is the fact that this Administration campaigned on “change,” yet they are attempting to frame America’s macroeconomic environment around failed European models.
To further illustrate this point, the tax-friendly states that were previously mentioned are unaware that the nation is an economic recession! Texas, for example, has shown job growth. Cities such as Austin, Houston and San Antonio have all posted net job growth over the past year. (4)
In addition to taxing the rich, the Obama Administration’s proposal that now exceeds 1,000 pages contains more disturbing provisions. The surtax will be imposed on people’s adjusted gross income (AGI), which means that the tax will also apply to capital gains and dividend income. Raising investment taxes in a time where fresh capital is so desperately needed is foolish beyond comprehension. Recessions linger and can quickly turn into depressions when an investment incentive ceases to exist. The bottom line is people are afraid to invest their money out of fear of negative tax consequences and the uncertainty of a burdensome regulatory environment. In addition, the wealthiest people are affected the most in economic downturns. Therefore, the government might come up short of their estimated $544 billion.
Speaking of fear, the President used a town hall meeting to convince Americans to discard “fear-mongering” from those who oppose his plan. With all due respect, Mr. President, pointing out the macroeconomic reality of this plan is not fear-mongering. Rather, it is an expression of great concern that these types of legislative measures will prolong the economic recovery that people are so anxiously awaiting. Although the nation wants healthcare reform, it is safe to say they do not want it at the expense of job creation and growth. It’s rather difficult to pay health insurance premiums that will now be required under the Obama plan when one is unemployed.
For those who do not feel they need health insurance, the option to opt out of health insurance coverage will cease to exist. The plan contains a requirement that all Americans buy health insurance. People will be penalized up to 2.5 percent of their income for failure to purchase health insurance. (2) Furthermore, some employers will be penalized up to 8 percent for failure to provide health insurance coverage to their employees. (2) Obviously, the added burden to business will come at the expense of jobs and future growth, which leads to higher unemployment. Just as minimum wage laws contribute to higher unemployment among unskilled workers, requiring businesses to provide health insurance coverage will produce the same result.
The nation does not need legislation that will stymie entrepreneurial incentive at a time when it is very much needed. There are decentralized free market solutions to health care that the Obama Administration continues to dismiss; and by doing so, the President is putting the nation’s economic health at risk. Congressman Henry Waxman says, “We cannot go home for recess unless the House and the Senate pass bills to reform and restructure our health-care system.” For the sake of the nation, perhaps Congress should take their recess early…
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