Republicans in Congress are vehemently opposed to the Pelosi and Baucus health care reform proposals. They correctly argue that each would lead to large tax increases. They then argue (with some degree of truth) that the two plans could eventually lead us to a system of government-run health care, a la single-payer. A single-payer system is where the government essentially pays all your medical bills to whomever the provider of the medical service. It must eventually lead to government rationing unless extremely high taxes are accepted and/or lower-quality care is accepted as a result of providers being paid less and thereby supply being reduced.
But it’s also the case that many Republicans in Congress swear they would never vote against a taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. cut (like the homebuyer tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. ), which brings me to this hypothetical policy proposal that some liberal member of Congress could propose to test Republicans: Establish a refundable tax credit equal to the amount of medical expenditures that one incurs in a given year.
It’s that simple. If you spend $50,000 on health care, you get $50,000 reduced against your tax liability (and if you pay only $20,000 in tax liability, you get a check for $30,000 from the IRS). If you spend $1,000, you get $1,000 knocked off your tax bill.
Now it is true that a significant fraction of the cost of such a bill would be legally classified as an outlay by CBO. However, a large fraction of it would still legally be classified as a tax cut (i.e. the nonrefundable portion). It would be kind of like the homebuyer tax credit which some anti-taxers support despite the fact that a large fraction of its cost is legally classified as an outlay. It’s still a tax cut and that’s all that matters to them, even if it grows the deficit and distorts the market. (Democrats could even integrate the payroll tax and the income tax in a revenue-neutral fashion so as to make less of this new credit refundable.)
Intelligent conservatives would realize that such a proposal, despite it being possibly the largest tax cut in history (at the expense of higher deficits), is economically equivalent to a single-payer system. There would be no price incentive for consumers when it comes to health care consumption decisions. The government would have to restrict certain procedures in order to save money. Government would likely become more nanny-state in an effort to save on health care costs. And heck, we might even have death panels.
But, but, but — it would still be a large tax cut.
The moral of the story is that just because something is called a tax cut doesn’t mean its economic effects are different than a similarly designed spending increase. With refundable credits, it’s all semantics (not just the refundable portion).
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