Chicago, Athens, and Jerusalem

A few weeks ago, Senator Max Baucus (D-Montana), the chairman of the Senate Finance Committee,  introduced a wide-ranging proposal to reform the US health care system. Today, the independent Congressional Budget Office released their score of the Baucus bill, as Marc Ambinder reports. The upshot is that the bill will cost $829 billion. That is less than expected, and if implemented, the Baucus plan would actually reduce the federal deficit by $81 billion.

Sounds like a great deal then? Not so fast, says leading macroeconomist Greg Mankiw. Mankiw and Jim Capretta note that the Baucus plan structures subsidies to purchase insurance in such a way as to impose an effective tax on middle-income families. Under the Baucus plan, all individuals without health insurance would be required to purchase health insurance or pay a fine. The subsidies are designed to alleviate the financial strain of this requirement on the poor, but the subsidies phase out as family income increases. This creates a marginal tax on income, which Capretta calculates could reach 30% for families with incomes equal to twice the poverty line. Add that to existing income taxes, and the result is a strong disincentive towards higher income-earning for middle-class workers.

Do the benefits of covering millions of uninsured Americans at a reasonable price outweigh the costs of imposing a large tax burden on middle-income families? Decide for yourself, but let’s hope that the members of the Senate are being so measured in their deliberations.