Wednesday, January 24, 2007

Net effect: 'tax cuts' are GOP code for 'tax shifts.'

Last night in his State of the Union address, the President suggested taxing some people's health care benefits to help pay to make health insurance more affordable for some other people.

What is remarkable is not that his vapid proposal about health care marks the first time he has addressed the problem of the uninsured in six years of his presidency, nor the fact that he suggested a tax increase.

No, it is that he is trying to do something that conservatives were very successful at twenty years ago. Shift taxation away from the wealthy onto the middle class.

The President did not say we should hurry up and get rid of his massive tax cuts that favored the wealthy. Nor did he say we should borrow the money, as he has done for everything from Iraq to the medicare presecription drug scam. No, he wants to fund his program by taxing people with employer provided health insurance. The threshhold sounds high enough, $7,000 per individual and $15,000 per family of health care benefits, but in fact with the rate of increase in premiums it is not unusual for people to receive this much in benefits and he didn't say whether this would just be the threshhold for premiums of whether actual payments made to health care providers would also figure into it.

To understand how profound this is, let's begin with the observation that Republicans are not against government spending, despite all their rhetoric. They have different spending priorities, such as funding wars and major military purchases, and multitrillion dollar giveaways in to already profitable companies in the pharmaceutical and energy sectors, to name a couple, but in the end they are even bigger on spending than the Democrats are (one reason why overall spending exploded under Bush much more quickly than it had had grown under Clinton.)

And if you spend, then there will be taxation. Either it will come now, as Democrats tend to feel, believing that we should pay for what we propose, or it will come later, for future generations to pay off our debt (as we've seen with the massive borrowing over the past few years.)

But what this does is, without revoking a penny of the previous tax cuts, create a new tax on people who may not be the ones who received the Bush tax cuts earlier this decade. So the net effect is that this is a tax shift. So when conservatives talk about 'tax cuts,' over a period of several years it will turn out not to mean 'cuts,' but rather 'tax redistribution.'

And it's not the first time this has worked for the GOP. For example. the 1981 Reagan tax cuts blasted a hole in the deficit that continued to grow throughout the 1980s until Bush I started to get things under control in 1991. Then the Clinton tax rates were set in 1993 with another tax hike (leading to a budget surplus and the most prosperous economy in decades, suggesting that conservatives who predicted a recession were way off the mark.) But the 1991 and 1993 tax hikes were 'across the board.' What this meant was that compared to 1980, the wealthy were still paying far less in taxes while the poor and middle class, who had not benefitted much from the 1981 cut, were now paying more.

And so it is here. I don't dispute the idea that taxing health care benefits to pay for what is officially being billed as an increase in the number of people covered is politically adroit, but in the end let's see how it, combined with the 2001 tax cuts, affects who pays taxes in America. My expectation is that taxes will as a net effect hit the middle class harder while the wealthy will still come out ahead on the exchange.

Why do we keep falling for this 'sucker punch?'


EAPrez said...

His proposal is DOA and it should be for many reasons. #1 - he did not propose a tax CREDIT - what he proposed was a tax deduction. $7500 for a single person, $15000 for a couple or family. A tax deduction for those who already can't afford insurance will do little to help them. They would have to BUY the insurance BEFORE getting the benefit of the tax deduction. A $40,000 per year couple would end up with a $2200 tax deduction for a health insurance premium of $10,000 per year!!!! That's just for the premium - doesn't include deductables. Also with it being a tax deduction the person making MORE money would get the bigger benefit. So the people who need help the most, would get less of it. Also those of us who currently get our insurance through our employeers pay those premiums as nontaxable income. The presidents proposal would tax the benefit that we currently enjoy without paying a tax and people who make more money than me would get the biggest benefit while I get none. A TYPICAL republican solution - help the wealthy on the backs of the middle class. I wouldn't mind paying a tax to help people have insurance - however his proposal doesn't help those who need it.

shrimplate said...

I would the additional step and call this class warfare, plain and simple.

Anonymous said...

I'm afraid you are right. And the sad thing is that the people who are the targets don't even realize they are getting screwed, in fact they keep voting for the people who are screwing them over.