What No One Is Talking About: The Economic Costs of Obamacare
By Benjamin Pacini • Wednesday, September 23, 2009 5:34 pm
Today, the heritage foundation released a brief on the current health insurance reform that Senator Baucus has proposed. The paper has grim warnings for those interested in pro-growth economic policy and job creation.
Not only is the health bill a massive increase in the size and power of government, a huge spending increase in a time of massive deficits, and a rushed attempt to make taxes more complex and numerous, it also would spell disaster for an already-wounded economy—particularly in investment and innovation. Dr. Karen A. Campbell, the author, puts numbers to the economic destruction that the higher taxes would cause. Her report includes the following important information:
• By 2019, the economy would have 452,000 fewer jobs than it would have without the increased taxes.
• Many individuals who are currently on the brink of further investment would have to cut back due to the tax; those who are not on the threshold would normally use profits to invest in venture capital (job creation) or, as Warren Buffett, would give to charity. Instead, this money would go to the federal government.
• Higher marginal rates also give an incentive to avoid paying taxes—that is, many small businesses (and owners) would begin to spend more time attempting to legally avoid taxes, instead of investing in productive activities. This is money that could have been spent on new jobs, and instead is wasted on legal tax avoidance.
• The deadweight loss from the tax—the value of all the things that could have been produced with the resources that were used to comply with and legally avoid the tax—would steadily increase. This cost would average 46.7 billion per year from 2011 to 2019.
• The high-income tax penalty is a very costly way to raise revenue. For every dollar of tax revenues that the government is able to levy, taxpayers pay $2.50 in opportunity cost and taxes.
• The root of the problem—the opaque medical system that does not allow consumers to seek the lowest price and highest quality options—is not addressed by Baucus’ bill. That is, not only will the Baucus bill raise taxes and hurt the economy, it will do nothing to solve the root of the problem.
The entire paper by heritage can be found here.
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