Economists with fringe views of the tax system argue that all taxes are regressive. Tax a business and it will not hire more workers or distribute profits back to its owners. People without jobs and owners of businesses without income are not consumers. Tax a gallon of gas and people will drive fewer miles. Cars last longer. Detroit suffers additional economic insults. Tax ordinary income and taxpayers will not buy new homes and will put off expensive purchases such as appliances for as long as they can. A two hundred dollar replacement part can keep a Maytag washer/dryer working for another five years.

The big decision about whether healthcare benefits will be taxed could be made over the next two or three weeks. Experts estimate that the cost of the entire healthcare system overhaul will be over $1 trillion during the next ten years. Hospitals appear to be willing to contribute $155 billion by accepting lower fees from Medicare, Medicaid, and other government sources. The pharmaceuticals industry is also willing to drop the amount that it charges for a number of its products and the financial windfall of that will be about $80 billion. That leaves a huge gap in funding which will not come from healthcare providers. Either the government will have to pay it out of general IRS receipts or there will have to be new taxes specific to healthcare benefits to supplement the deficit created by the extreme changes in the healthcare system that the Administration is proposing.

Most members of Congress do not seem anxious to go to their constituents with a plan to have employed voters pay a new tax on their health benefits so that the government can offer affordable healthcare to the balance of the nation. The workers still employed aren’t selfish because they don’t want to pay more taxes while making less in order to help those without health care.  They are just one rung ahead of the suffering themselves, struggling to pay their bills and hoping their jobs won’t be the next to go.

Somewhere in the slaughterhouse between the Administration’s promise not to raise taxes on the middle class and its belief in the need for healthcare reform is the issue of when additional tolls on income finally break the back of the economy.

The budget for the current federal fiscal year is already dated and useless. Receipts will be tens of billions of dollars below projections. Unemployment will be above forecasts by two million people or more. Healthcare reform is immensely expensive but the question is whether it is so expensive that it could tear the skin of the economic recovery while it is still in early infancy.

Four hundred or five hundred dollars does not seem like a lot of money, but a healthcare benefit tax for a family of four receiving premium benefits from one member’s employer could certainly stretch into several hundred dollars a year. According to the AP, the straw man for the tax now is that it would be levied on workers whose insurance costs more than $25,000 a year, but that figure was until recently aimed at those whose costs were above $15,000. That makes providing an exact estimate of what the program will take away from the income of a typical family with healthcare benefits impossible. The only thing that is certain is that the total value of the taxes over the next ten years would need to be $320 billion to balance the books on the costs of the mammoth program. So, the government is proposing to look for over $30 billion in new tax income during a recession which may be far from over.

A few hundred dollars will mean a great deal to most middle class families who have no equity left in their homes and more credit card debt than they can afford. A healthcare benefit tax that takes that much money out of their pockets may mean the difference between going to the mall for Christmas shopping this year or staying home and giving the kids an orange in their stockings. It may make the difference as to whether or not a credit card payment is made on time.

The recovery in consumer spending, when it comes, will have a simple foundation of a few hundred dollars being spent each year by a few hundred thousand households. Any tax that prevents that from happening, even one to improve national healthcare, is de facto a regressive one whether it should be levied or not.

Douglas A. McIntyre

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