Why target “tax expenditures”?

(See September 20, 2011 post)

1. Because eliminating "tax expenditures" would make our tax system simpler, fairer, and more efficient, as explained in the comments of my original post.

2. Because there's no better way to fund health insurance vouchers.

Vouchers could be funded with a new tax, such as a national sales tax. But support for that would likely be low. Who wants to add another tax on top of the mess we have already?

The Affordable Care Act is funded by mandates and penalties and several new taxes, which are offset by tax breaks and subsidies. The complexity of the system undermines the confidence that people ought to have in it.

I think most people will feel that funding health insurance vouchers with income taxes is fair – if they feel that the income tax itself is fair. But they'll never think it's fair until we get rid of all those “tax expenditures” and the complexity and uncertainty that goes along with them.

My guess is that, individually, most people will be glad to give up the tax breaks that they are currently claiming on their own tax returns in order to have a simple income tax that is much easier to comply with, and to know that it is funding universal healthcare coverage.

Opposition to eliminating “tax expenditures” is more likely to come from people and groups who feel that their business or employment depends in some way on these provisions in the tax law. A lobbyist, for example, may not care about the tax breaks he would lose, but may be very concerned about losing his job if regular opportunities to influence tax legislation are eliminated.

We have a unique opportunity to achieve healthcare reform and tax reform at the same time. Universal healthcare coverage gives us a compelling reason to do tax reform. Both would be a great benefit to the country.

Why Vouchers?

(See September 20, 2011 post)

1. Because vouchers would cover everyone.

The major purpose of the Affordable Care Act was to get more people covered by health insurance. It employs a number of elaborate measures (with lots of rules and regulations that can't be mentioned here), but it still won't cover everyone.

The Republican plan to replace the ACA would also encourage health insurance. But with no penalties for going without insurance, it wouldn't cover as many as the ACA.

People facing large medical expenses, but who don't have health insurance for whatever reason, have various options (not necessarily considered in this order):

• Go without medical treatment.
• Use savings, maybe including retirement funds.
• Sell assets -- business property, houses, cars, personal property, anything of value.
• Appeal to charity.
• Go into debt (possibly resulting in bankruptcy).
• Go on Medicaid, after personal resources are depleted.

I think most people would be glad if they had health insurance for themselves, and would be glad if they knew that everyone else had it too.

2. Because vouchers would help control costs.

Vouchers are limited by their nature. They will introduce a lot of effort to get as much value as possible from the funds available. Annual increases will be subject to deliberate controls.

Vouchers would be a big change from the current system where more expensive insurance gets bigger tax breaks and subsidies. Generous insurance coverage results in overpricing of medical services, and in overuse of services, especially those that are more expensive and/or of unproven or marginal value. So medical spending goes up, insurance premiums go up, and tax breaks and subsidies go up, in a vicious cycle.