Holman Jenkins, Jr., in the WSJ Political Diary, makes a cogent case for tax reform as a solution to health care, Medicare and retirement.
We've long predicted that when all else fails in the health-care policy arena, reformers will finally hit upon the real solution: tax reform. Ditto the problems with Social Security and Medicare. The way out of these thickets is via a fundamental overhaul of the tax system, too.President Bush has now put tax reform at the center of his second term agenda, and rightly so, and we can only hope it doesn't dawn on the media for a while that he hasn't thereby downgraded his overhaul of entitlements. Tax reform IS the magic bullet.
Details can be conjured up later, but the basic architecture would be elimination of the income tax -- "income" being a hopelessly vague and loophole-ready concept -- in favor of some kind of consumption tax. Thus any money put aside for future consumption -- a.k.a. savings -- would remain untaxed until it's consumed. Presto, this would restore a natural incentive to save for future consumption, say, for retirement or old-age medical expenses.
Daunting political challenges would remain, of course: Prepare the middle class for the loss of tax preferences for company-provided health insurance. Prepare workers to face a decision whether to remain in Social Security and Medicare (both of which are destined to be scaled back because of their fiscal unsustainability) or take ownership of their payroll taxes in the form of private investment accounts.
No freakin' way, you say? Probably not. But last year's Medicare bill, which authorized Health Savings Accounts for the masses, shows there may be a method to such crazed White House overreaching. By putting individual medical spending and insurance purchases on the same tax footing as employer-provided insurance, HSAs hold out the prospect of gradually undermining, by Fabian encirclement, our current nutty system of health care insurance and payment. Employers and workers alike will realize the economic advantages to themselves of a system that rewards the consumer for using his health-care dollars wisely. Tax-benefited, employer-provided, over-rich insurance will gradually become obsolete.
In much the same way, the right kind of tax reform could wean earners away from wanting to rely on Medicare and Social Security (because they'll realize they can do better investing their payroll taxes on their own), leaving those programs to wither into safety nets for the poor.
UPDATE: One of my favorite quotes is President Eisenhower's: "If a problem cannot be solved, enlarge it." The perspicacious readers of this blog are probably way ahead of me on this, but I have been applying the "enlarge it" concept to many intractable problems in the last year, and the solution is frequently found in the larger space.
Looking this up, I found quite a few bon mots from the man who was president when I was born, check 'em out!
Posted by jk at November 9, 2004 10:52 AM