Our Unhealthy Tax Code

If progressives want to cure what ails the health care system, they first have to put the tax code on the examination table.

Ultimately, the best plan might include many elements from the recent health reform in Massachusetts while also addressing that scheme’s biggest shortcoming, its lack of sufficient funding. Under a plan of this type, people would have the responsibility to ensure that their families are insured–with a penalty for anyone without insurance. At the same time, the federal government would have the responsibility to make insurance affordable for all through a combination of progressive tax credits, employer mandates (or penalties for firms not offering insurance), a new pooling mechanism for small businesses and higher risk individuals, and expansions in Medicaid. The money saved by ending the tax deductibility of health insurance, plus the existing funding for Medicare and Medicaid, might be enough to pay for a well-designed, universal health-insurance plan. If not, additional funds could be provided through relatively modest tax increases or spending reductions.

Making these changes will not be easy. In the 1980s, Congress rebuffed President Ronald Reagan’s bid to cap the amount of health insurance that could be deducted, and just last year, President Bush’s tax reform commission was criticized for proposing the same idea. However, what was missing from both proposals was any commitment to use the bulk of the money saved by eliminating the deduction actually would be used to expand and improve access to health insurance.

And let us remember, no plan for universal insurance will be easy. The principal goal of universal insurance is to provide more health care for the uninsured and to reimburse them for more of the costs they are currently paying themselves. Even with some savings from better preventative care, reduced visits to emergency rooms to deliver routine care, and reductions in uncompensated care, the total bill for universal insurance is likely to be anywhere from $50 billion to $200 billion, depending on the details of the plan and who is doing the cost estimates.

Nevertheless, there are many areas in which our tax code’s perverse incentives take us in the wrong direction, wasting money and exacerbating inequality across society. Although conservatives talk a lot about efficiency, ultimately their tax policies reflect their values: a desire for an even less progressive distribution of resources and a smaller government. Progressives should focus more on efficiency, not just in the traditional economic sense but also in terms of ensuring that our limited resources are put to the best use in achieving those social goals–-like helping families pay for college or health care–that are increasingly being funded through the tax system. There is no better place to start than with our number-one national problem: health care. And if we cure what ails our tax code, making it more progressive and fair, we can put health care within reach for all Americans.

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