Monday, January 17, 2011

More Obamacare analysis

My letter to the editor sparked some interesting debate and comments. Mostly encouragements, good to hear.

There were a few folks who didn't necessarily disagree, but who think that we'll never get people to be personally responsible for themselves on a large enough scale to ever solve the problem.What can I say? If you start with a low expectation of people, they'll satisfy that expectation. It's like the epidemic of low expectations in majority-black schools these days: If you tell students that they can't learn, then they won't try, and if they don't try, they won't learn. Likewise, if you create policy based on the expectation that people won't try to plan for their own future, you'll make it harder on people who actually do plan for their own futures.

On the other hand, if we expect that there will be people who are responsible, and that there will be people who are charitable to those in need, then we might actually get people who are responsible, and people who are charitable to those in need.

There was one poster who actually thought that this healthcare bill would actually reduce the cost of healthcare. I pointed out that the new bill had put the brakes on several hospitals being built. He said that building new hospitals would increase the cost of healthcare!

Let's just nip that in the bud, shall we?

Image from Wikimedia
See this chart? Basic microeconomics. Invest to increase the available supply of medical services, and you move your Supply curve from S1 to S2. The result of that is that your Price moves down from P1 to P2, while the quantity of health care actually received moves up from Q1 to Q2. Yes, there is an investment cost, but with the increase in patients served, the total revenue will go up. The new bill, though, does nothing to increase supply. If anything, it makes it harder for suppliers to reach the market by adding new layers of paperwork and bureaucracy.

It gets even worse. Here's a comprehensive list of tax hikes embedded in Obamacare, thanks to the Americans for Tax Reform. I won't go through all of them, but there's a few that jump out at me as being especially wrong. If your goal is making it easier for Americans to afford healthcare, these taxes are exactly the wrong thing to do.

Medicine Cabinet Tax - Last year, I got a Health Reimbursement Account from my employer. Pre-tax dollars go in, and as long as it is used on healthcare, it never gets taxed. This last year, I was able to use it for non-prescription medicine. Now, I can't. How does taxing my Tylenol make my health care more affordable? Or, let's say you've got a mild heart condition that you treat with Aspirin in order to keep from developing a seriously expensive heart condition. Wouldn't keeping your medicine tax-free be a help?

Tax on Medical Device Manufacturers - As of January 2013, there will be a new excise tax on medical device manufacturers. If you're trying to make healthcare cheaper, why are you taxing medical devices? This tax will also be a job-killer for these companies.

Excise tax on Charitable Hospitals - Hello, Washington? You're taxing CHARITY? How much more wrong can you get? Okay, so you're running a hospital like Children's Healthcare of Atlanta, or Scottish Rite, or St. Jude's, a hospital that saves lives, offers exemplary service, and charges patients far less than the actual cost of their service, thanks to the generous, tax-exempt contributions of donors. Tax-exempt because the hospital has satisfied the IRS that it should be a 501c3. But wait! Now the hospital is going to be taxed because they are a charitable hospital!

There is only one explanation I can think of for this. The power to tax is the power to destroy. Charitable hospitals must be punished, because they demonstrate that people can be generous without government involvement. Punish the charitable hospitals out of business, and people will have to turn to the government for their health care! It's despicable.

Codification of the "economic substance doctrine" - This one's so scary, I just had to get confirmations from multiple reliable sources. What's this scary doctrine, you ask? According to Americans for Tax Reform, "This provision allows the IRS to disallow completely-legal tax deductions and other legal tax-minimizing plans just because the IRS deems that the action lacks “substance” and is merely intended to reduce taxes owed."

That's right. You've done something completely legal that just happens to lower your taxes. Maybe it's a donation to a 501c3, a church, a soup kitchen, or a local theater company. Maybe it's saving for retirement, or your child's education. Whatever you've done, it's completely 100% legal. But if the IRS auditor reviewing your case decides that your only motivation was to reduce your tax hit, they can not only take away your tax deduction, they can also penalize you.

It doesn't stop there. Companies are now responsible for red-flagging themselves to the IRS under this new code. The company I work for does a lot of donation to charity. Why? It's simply the Right Thing to Do. It's investing in people and neighborhoods. Believe it or not, there are still companies out there that try to do the right thing. Under this law, one of the rules is that an economic transaction must be of a substantial economic benefit to the company. One could easily claim that the company I work for doesn't get any economic benefit for giving donations to soup kitchens and other local causes. Now they're going to punish us for our charity? How wrong is that?

We may not be up to the point where the government can persecute you for thought-crime, but it looks like we're at the point where they can tax you for your perceived motivations. If an IRS auditor says you did something just for the tax benefit, how do you defend against that?

I hope that my many friends in local theatre will read this and take note. How many of you work for non-profit companies that are dependent on corporate and individual philanthropy? Your benefactors are soon going to be punished for their generosity. If that doesn't scare you, I don't know what will.

I know what you're going to say. "But Danny, that new law is just to go after tax evaders!" In the eyes of some IRS agents, anyone who puts forward any effort to hold on to their own money is a tax evader. I've read far too many stories of innocent, law-abiding citizens suffering at the hands of abusive IRS auditors out to improve their own job performance ratings. The Founders knew: Give any human being an unchecked government power, and that power will be abused.

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