Why Not Subsidize Health Care Through the Tax Code?

February 02, 2006

Former Congressional Budget Office director Douglas Holtz-Eakin had some insightful comments at an American Enterprise Institute conference last week exploring a proposal to use the federal income tax system as the vehicle for health care reform.

In response to the idea of adding a tax exclusion for individually purchased health care expenses -- in addition to the current one for employer-provided care -- Holtz-Eakin had this to say:

I think it's bad tax policy. We ought to have in this country a tax system that means something. I am less in favor of tax systems that are designed to do things other than raise revenue. We are likely to spend a lot of money in the future. The government is likely to be bigger than it is now -- I don't know how much -- and we need a tax system that raises those revenues efficiently and doesn't muck up our economy too much. Things like this are a recipe for mucky up the tax system and the economy and so I really am nervous about that as -- from a tax-policy perspective, and implementation perspective.

So, you know, I would just do it. I would get rid of the deduction, but I'm never going to run for office, and I obviously am immune to people's anxiety because that would produce some.

As you can see, Holtz-Eakin clearly views the tax system’s main purpose as being to raise revenue for federal programs, not a tool for implementing social policy or administering social programs.

In an earlier statement, he also spoke about the administrative and privacy concerns that would likely result from the IRS taking on the role of determine qualified health care expenditures:

I hate -- let me say it more carefully -- I really hate -- the notion of making everything that you want to label a healthcare cost deductible. I mean, if you want to have a personal relationship with the IRS do that because we are going to have to investigate everybody's home to see if their running shoes are a medical expense.

Click here for a summary of the interesting policy discussion from the event, including a link to the video of the conference.

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