Wealth of Nations January 2007

A Glimmer of Purpose in the Pantomime

Democrats ought to pass President Bush's health care proposal without delay, and demand that he sign it into law.
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State of the Union: Post Mortem
Bush's 2007 State of the Union address, annotated by James Fallows.

State of the Union speeches are traditionally short on substance and long on pantomime—am I the only person to find all that jumping up and down absurd?—but this year's address vied to set a new standard in pointlessness. Everybody knows that George W. Bush and his administration are going be judged on, and long remembered for, just one thing: the outcome in Iraq. Only an optimist would dare to say that there is even a chance that Iraq will turn out well, and who is any longer an optimist? But in any case the president had nothing to add to his earlier broadcast on the planned "surge." He dwelt on Iraq at surprising length on Tuesday night, but added nothing at all to the earlier announcement. It is hard to believe that the mind of one American was changed by what he said.

The domestic agenda for the remainder of this crippled administration obviously matters less to the country and to history than Iraq does, but the domestic policy part of the speech at least offered something both new and, believe it or not, well thought out. I am not talking about the laughable call for a balanced federal budget—a demand that will be accorded all the respect this president is entitled to on that topic. I am not thinking of the call for comprehensive immigration reform—a good proposal, in fact, and one that stands a fair chance of being acted on, since Democrats are better disposed to it than are members of the president's own party; but this is an old idea. And I am not referring to Bush's canned declarations on energy independence, which have been included, it seems, in every one of his State of the Union addresses, and which call for policies that are either beside the point or undesirable or both (ethanol subsidies). The interesting new thing was what he said about health care.

Democrats, following the prompts of House Speaker Nancy Pelosi, stayed mostly seated during that section, of course. (Health care, stand up; president's proposal for health care, sit down.) Both before and after the speech (this part had been much trailed in advance), they deplored the president's new plan every which way. They should think again. What the president suggested—who knows, perhaps there was some kind of mix-up—is exactly the kind of health care initiative Democrats themselves could and should be advocating. They ought to legislate this new proposal without delay, and demand that the president sign it into law.

What the president wants to do is cap the tax deductibility of the more expensive employer-provided health insurance plans and use the proceeds to provide a corresponding tax deduction for workers who buy their own insurance. Individuals could deduct $7,500 a year from their taxable income to offset the cost of health insurance, and families $15,000 a year. Employer-based plans worth more than that would be taxed on the excess. The White House says that about 20 percent of taxpayers, those with unusually generous plans, would be hit by the new cap on deductibility: They would have to pay tax on the difference between the value of their policies and the new deduction. On the other hand, the new deduction would make insurance cheaper for taxpayers whose employers do not provide it. For some low-income workers, it will make the difference between being able to afford insurance and not.

Plainly, this plan is not in itself a comprehensive solution to America's health care problem—nothing like it. But it is a really useful step in the right direction, and in many ways a surprising one for this president, in particular, to suggest. The underlying idea, to repeat, is to increase taxes on the better-off in order to support an expansion of health insurance coverage for the lower-paid. Now, which part of that, exactly, don't the Democrats like?

The idea addresses what is, in fact, one of the most outrageous anomalies in the American tax code—namely, that employer-provided health insurance is tax-deductible whereas individually purchased health insurance is not. This is unfair, not least because it discriminates against the poorly paid (who are more likely to work for firms that do not provide employer-based plans). This makes the tax system more regressive. A more subtle and even more important point is that they tilt the whole health insurance market, and hence the character of America's entire health care system, in a very undesirable way.

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