The Magazine

Health and Taxes

The Bush plan is good medicine.

Feb 5, 2007, Vol. 12, No. 20 • By DAVID GRATZER
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The president's plan would tackle both the overinsurance and unfairness problems. He proposes leveling the tax playing field between employers and individuals, by making everyone report health benefits as income but allowing some tax deductions. But he'll standardize the deduction, meaning that families whose health premiums are more than 50 percent higher than the average American's would no longer get a free ride on all taxes. Most workers would get a modest tax cut. In short, if President Bush's plan passes Congress, it will partly eliminate the unintended consequence of FDR's wage controls on today's economy. (A more sweeping proposal would have been to end any health premium deductibility--an idea that would be politically dead on arrival.)

But that's a big if. Democrats are loath to consider any idea that could be perceived as undermining employer-sponsored health insurance. And Republicans may be reluctant to take on the politically charged task of tax reform.

The White House has been here before, thinking big only to be stopped by the inertia of Congress--and that was before we had a Democratic Congress. Ways and Means chairman Charlie Rangel has called the idea "dangerous."

But the president's position is easily defended, and he has a tactical card to play. Without reapproval, SCHIP (the 1997 state children's health insurance program) ends this year. Democrats are pining to reauthorize the program--which benefits children whose families are too well off for Medicaid. The president can look to cut a deal. Indeed, he can be bold, offering Congress a series of proposals aimed at making health care more accessible: allowing the states greater freedom to innovate with Medicaid (using welfare reform as a model); reducing the cost of health insurance premiums by giving people the ability to shop out-of-state for policies; and expanding health savings accounts, which offer Americans lower-cost coverage.

Republicans--and this president--are rarely excited by health care reform. However, increasingly, Americans are. And the president is right: Health care reform begins with tax reform. It's where the money is.

David Gratzer, a physician, is a senior fellow at the Manhattan Institute. He is the author of The Cure: How Capitalism Can Save American Health Care.