Differences Among Friends

Grace-Marie Turner

Several senators were poised to offer an amendment to the SCHIP bill during the Senate debate last week that reflected long hours of work on a free-market, patient-centered alternative. But they ran into a buzz-saw of opposition, not from the Left but from a friend of free markets, Grover Norquist of Americans for Tax Reform.

The Senate amendment, which Sen. Richard Burr (R-NC) was preparing to offer on behalf of a number of his colleagues, would have replaced the seriously-flawed tax preference for job-based health insurance with a universal refundable tax credit for individuals and families to purchase private coverage.

Not so fast, Grover warned, issuing a stern warning that he would consider the amendment to be a violation of ATR's no-tax-increase pledge, which has been signed by 42 senators and 196 members of the House.

There was outrage all around, reflected in a nationally-syndicated column this Monday by Robert Novak. "The quarrel over the Burr amendment reflects not only a failed Republican reaction to big government but also a weakening of GOP resolve to hold down taxes," Novak wrote.

Senators were furious that they are being depicted as tax increasers when they were trying to lead the fight against socialized medicine. They (correctly) believe that they were offering a solution to a major distortion in the tax code and wanted to fix it while expanding access to private health insurance for all Americans.

"The 'Every American Insured Health Act' provides every American with a refundable, advanceable flat tax credit of $2,160 per individual and $5,400 per family that gives them the freedom to choose the health care plan that best meets their needs," Burr said in introducing the bill as free-standing legislation a week earlier with four colleagues. "The plan is budget neutral and puts an end to unfair discrimination in the IRS tax code that only benefits health coverage offered by employers and that disproportionately subsidizes Americans with more costly health plans and with higher incomes."

But Norquist concluded that the senators' proposal would result in an $800 billion tax increase over 10 years by eliminating the tax preference for job-based health insurance, which he says would be a tax increase, and replacing it with refundable credits, which he says would be new spending.

The policy community also was angry after advocating for years eliminating or capping the tax exclusion and replacing it with a system of individual credits.

Sen. Jim DeMint (R-SC) had an alternative ready to go that solved Grover's complaint that the bill was a tax increase by coupling the health insurance amendment with a fix to the Alternative Minimum Tax to make the package "tax neutral." But Sen. Tom Coburn (R-OK), a leader in developing the senators' alternative approach, balked, forcefully arguing that the health care alternative is not a tax increase.

So the amendment was pulled from the floor for another day's battle.

It is essential to fix the tax treatment of health insurance if we are to address the problems in our health sector that shut tens of millions of people out of the system and give open-ended tax breaks to higher-income people to purchase expensive health insurance, exacerbating the problems of the uninsured by driving up costs. The alternative is to continue down the road to further encroachment of government control through expansion of government programs like SCHIP.

You will recall that we put together a white paper two years ago bringing experts from the health and tax policy communities together to point out the flaws with the current tax preferences for employment-based health insurance. Health and tax policy experts alike criticized the current system for allowing an unlimited call on federal resources to subsidize expensive health insurance in an inequitable system.

More than 58 policy experts signed the statement, which we delivered to President Bush's Tax Reform Commission. Our message was adopted in the commission's final report and became the foundation for Mr. Bush's bold tax and health reform proposal earlier this year.

We will work to repair this rift over the tax exclusion for job-based insurance, which even President Reagan tried to fix 25 years ago. It's vital if we are to create an equitable system for access to private health insurance.

Despite all of this, we are making steady progress in educating the debate about the need to fix the problems with the tax treatment of health insurance. One more group has studied our health sector extensively and has come to our same conclusion. The Federal Bar Association's Section of Taxation is weighing in on refundable tax credits for health insurance in a forthcoming paper.

The paper argues that "… a supplemental system of refundable tax credits whose benefits are aimed at those with low incomes is the best system for achieving the goal of insuring as many Americans as possible." It also says that the credits should be offered "in tandem with the current system. It is simply too risky to completely overhaul a system under which 75 percent of all Americans are insured." Okay. We have to start somewhere.

It's vital that we focus on getting the policy right on both health and tax policy, and we can do that only if we can get free-market advocates to stop forming a circle with their firing squad.

Grace-Marie Turner is President of the Galen Institute
Copyright 2007. All Rights Reserved.

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