U.S. can’t afford Obama’s plans or the taxes that go with them

The pork-laden “stimulus” bill that President Obama recently signed contained more than $100 billion in new government health-care spending. If the president and his congressional allies have their way, though, that’s just the beginning of a vast expansion of government funded health care.

Two recent studies from the nonpartisan Congressional Budget Office should give them pause. The reports show that government health-care expenses are already spiraling out of control, and that lawmakers will likely have little choice but to resort to tax increases to finance new health-care expansions.

Health care is gobbling up an ever greater share of the country’s wealth. According to the CBO, spending on Medicare and Medicaid is projected to rise from about 4 percent of gross domestic product in 2009 to nearly 6 percent in 2019. In 10 years, the two programs will cost $1.4 trillion. That’s a third of the entire federal budget.

Despite this, President Obama wants to further increase government health-care spending – even beyond the stimulus package and his recent $33 billion expansion of the State Children’s Health Insurance Program.

The stimulus is a down payment for a couple of years – Obama estimates his real health reforms will cost yet another $50 billion to $65 billion a year. He plans to raise that total by rolling back the Bush tax cuts for Americans earning more than $250,000 annually and retaining the estate tax at its current level.

Unfortunately, the CBO reckons that Obama’s package will actually cost more than $100 billion annually. And he won’t cut spending in other areas. The president is also committed to throwing even more of our money at windmills, solar panels and whatever other subsidy-addicted industry can find a place at the trough.

So, the tax monster must rise again. But a tax hike would wreak havoc on American families’ welfare – even after we emerge from this recession – because it reduces Americans’ incentives to work, save and invest in businesses.

Professor Martin Feldstein, chairman of President Reagan’s Council of Economic Advisers, has estimated that a $1 dollar tax-hike costs the nation an extra 76 cents in lost output. That doesn’t include the “deadweight” cost of spending time and resources preparing and filing taxes.

This reduction in national earning is especially destructive if used to fund a government takeover of health care – because families’ incomes are a far greater predictor of good health than the health-care system is.

Some argue that tobacco taxes (which fund much of the president’s health-care takeover plans) are different because smoking is bad for us. True enough, but taxing smokers to fund government growth has the same effect as any other tax. A far better way to ensure that smokers pay their health-care costs would be to allow health insurers to charge them actuarially fair premiums – something generally illegal outside the small market for individual health insurance (and Obama wants to make it illegal there, too).

There are also the costs incurred when complying with new taxes. Anyone who’s ever filled out an Internal Revenue Service form knows firsthand about compliance costs. Instead of engaging in productive activity, people have to spend time and money adhering to confusing and complicated tax laws.

Plus, the government must spend money to administer new taxes, prosecute non-compliers, and maintain the tax code and billing systems – all on the taxpayers’ dime.

No one denies that health-care reform is urgently needed. But the CBO has shown that the country can’t afford the proposals laid out by President Obama – and the economy can’t afford the tax increases he’d use to pay for them.

John R. Graham is Director of Health Care Studies at the Pacific Research Institute.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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