Wednesday, January 24, 2007

...Or How Republicans Learned to Stop Worrying and Love Complex Regulation

by Tom Bozzo

Since Drek suggested that real analysis of the SOTU policy proposals might be found here, I suppose I should do more than call the WPE a bad bad name for reminding me of the Baby Einstein Company — which the cumulative effects of sleep deprivation had mostly eliminated from my long-term memory.

While the overt failings of the proposals are significant (and, indeed, make it very unlikely that the Bush health care "plan" will be enacted anytime soon), let me first note an overarching theme which can, at a minimum, annoy the back-to-small-government-conservatism wing of the Republican Party. That is: what passes for Republican policymaking depends critically on the successful functioning of highly complex regulatory schemes for the principal end — to again swipe Roy's great turn of phrase — of not making the Invisible Hand feel bad (*). Significant related assumptions are that people prefer complex "private" solutions to simple government ones, and relatedly will feel better about government mandates if the madatory payments are made to corporations rather than the government.

The possibility that failure is a feature rather than a bug can't totally be eliminated, though evaluating all the game-theoretic possibilities would drive me nuts so that's left as an exercise to the interested reader. Some of the risks to such strategies are obvious, for instance, someone may actually get elected on a platform of fixing popular but screwed-up programs. The problem with Medicare Part D isn't that people don't think senior citizens deserve affordable prescription drugs, after all.

More after the jump.

Whereas the health care mandates a la Romney require bureaucracies to enforce the mandate and to distribute public aid to the needy, the Bush plan's complexities seem to be mainly on the tax enforcement side. For instance, Max wondered about whether the payroll tax exemption would cover the employer portion. Berman, Furman, and Williams (BFW) say yes (the White House page is unclear, but BFW presumably have inside information). Implementing the exemption for the employer portion requires that employers who don't offer health insurance to maintain records of their employees' insurance status, and presumably to maintain records documenting their eligibility not to remit the employer portion for covered employees.

Currently, holders of multiple jobs can overpay their Social Security tax if their combined wages exceed the Social Security wage cap. Since multiple McJobs don't usually come with much risk of near-six-figure income, refunds of excess Social Security tax payments probably are not very common. (**) The Bush exclusion, in contrast, would seem to lead to widespread underpayment issues. That could be "solved" for the employee portion by means of a nasty surprise on one's income tax return. Exactly how multiple employers would coordinate so as to exclude only the allowable amount of income for the employer payroll tax is beyond me. (Perhaps BFW are wrong, or wiser heads would limit the exclusion to the employee portion were an actual controversy to arise.)

Of course, the IRS will also have to ensure that claimants of the deduction aren't engaged in simple chiseling (more Forms 1098; good for the Postal Service) or complex frauds involving things that look like the payment of premiums on eligible policies but aren't.

None of this even begins to address the conceptual bass-ackwardness of the plan. Matthew Yglesias is dead on here:
Most Americans, like virtually all Democrats, define the "health insurance problem" in the United States as consisting of the fact that many Americans have no health insurance, others have too little health insurance, and others find paying for their health insurance to be extremely burdensome. The Bush administration, by contrast, defines the problem as many Americans having too much health insurance and therefore using too many health resources.
Indeed, the Administration's goes so far as to describe those fortunate enough to be covered by the traditional employer-based health insurance system to be the recipients of "unfair subsidies." As a result, according to the White House:
This encourages many workers to choose lower wages and more expensive health insurance than they would choose if the tax code were not distorting their decision. (Emphasis added.)
Were I a Democratic strategist, this is what I'd be hammering: Hey, insured majority, the Bush administration thinks you have it too good. Plus, they have their standard bait-and-switch on. Just like the Alternative Minimum Tax was meant to erode the tax "cuts" to make them look like they'd blow a smaller hole in the budget, the Bush plan intends to have health care inflation erode the value of the deduction. So if you aren't getting that "gold-plating" now, prepare to join the club — and see your taxes go up, just as your health insurance is getting more and more expensive. And if that's not all, they'll deduct some of that deduction from your Social Security. Meanwhile, it'll screw you without even helping most people who really need it — they still won't be able to afford the premiums. (***)

One would hope that the "plan," by this point, would be recognized for the steaming piece of crap that it is.

Next up: Sen. Grassley gets more lovin' than Holy Joe?


(*) Given the paradox of advancing the free market by regulatory meddling via tax or other policy levers, maybe just a couple of the fingers.

(**) High earners switching jobs would tend to be most affected.

(***) The "plan's" laissez-faire attitude towards risk pooling doesn't help much on this front.

Comments: Post a Comment

<< Home

This page is powered by Blogger. Isn't yours?