Sunday, April 04, 2010

Facts about health-care reform will doom the Dems

Published in The Tennessean, April 4, 2010

Facts about health-care reform will doom the Dems

by Richard J. Grant

The losers of intellectual battles, especially in politics, often resort to a “red herring” defense. They deliberately attempt to divert attention from the original topic by presenting the audience with a new, largely irrelevant topic.

The new topic is, figuratively, dragged like a real red herring across the trail to distract the pursuing hounds from the scent of the fleeing fox. In fox hunting this makes the chase more challenging. But in politics it is used to enable a devious faction to get away with bad arguments, or to lead voters’ memories away from the faction's most unpopular policy actions.

As the political battle over health-care reform finally came to a vote, it was clear that although the final bill passed both houses of Congress, most citizens were unimpressed and remained opposed. The defiance of the popular will, as well as the sleazy techniques employed to paste together what was clearly a bad deal, understandably aroused anger in the electorate. With the midterm elections only seven months away, the offending party needed a distraction.

Enter the red herring. Suddenly media attention focused on the angry reaction as if that were the real story. Those who clearly felt violated by blatant government intrusion into their lives were smeared with the imagery of violence and extremism. A paucity of evidence was not allowed to interfere with belief in the official thesis.

Once the health-care reform bill passed, it was possible to quantify the likely consequences for individuals and companies. It should have been no surprise that increased government interference in the medical and insurance industries would raise costs. Sure enough, reports appeared that younger workers would soon face higher medical insurance premiums as a result of the new law.

More notably came the rude news that the tax implications of the new law were forcing companies to take huge writedowns, totaling billions of dollars, against future earnings. AT&T alone took a charge of $1 billion, while Deere & Company and Caterpillar each reported charges of at least $100 million. These reports are required by law.

This outbreak of reality did not fit with the utopian imagery of health-care reform so carefully cultivated by the Democrats. How dare anyone point out that costs, particularly taxes, would in fact rise as a result of the reform? It wouldn't take long before everyone could see that the enacted health-care reform was really a budget buster and a job killer.

The immediate political response was to shoot the messengers. Henry Waxman lost no time in demanding that these rude companies justify their reports at April 21 hearings before his congressional committee. Let other companies be warned.

But reality won't quit: it is just a matter of how much will be revealed before November. Although the tax and regulatory burden of the reform will be heavy, the actual tax revenues generated will be far less than predicted. There is no way that those targeted for tax increases will stand still. They will reduce their tax exposure. Susceptible companies will shift to a more tax-resistant corporate form; high income earners will avoid taking capital gains and will make greater use of tax-protected investments; and some people will just trade off income for more leisure.

Taxes for health-care reform will be imposed several years before most of the promised benefits come along. This was arranged partly to help give the illusion that the reform package would be self-financing and partly, in the meantime, to help keep the operating deficit lower than it would have been. But neither of these goals is likely to be realized: costs will be higher and revenues will be lower than predicted.

Although we should be recovering from the recession, whatever prosperity we experience will be diminished by the extra ballast of government interference. In recognition of this, perhaps our November message to the Democrats should be, "So long, and thanks for all the fish."

Richard J. Grant is a professor of finance and economics at Lipscomb University and a scholar at the Tennessee Center for Policy Research. His column appears on Sundays. E-mail: rjg@richardjgrant.com

Copyright © Richard J Grant 2010