Hypothetical Mean

Commentary from an Actuarial and Economic Perspective

Taxation Delusion

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Schumer offered some very strange logic on the latest tax plan offered by Senate Democrats:

He said there is “broad support” among Democrats on the finance panel to include new fees on insurance premiums, and “some of the Republicans” have said they will consider it. While he declined to discuss how the plan might be structured, he said lawmakers want to find a way to prevent insurers from simply passing the fees on to their consumers.

“If there’s real competition, there’s less likelihood and ability to pass it through” to consumers, Schumer said.

If Schumer’s right that real competition is sufficient to prevent passing taxes through to consumers, then why isn’t the “competition creation” in his proposals sufficient? Either the public plan and Exchange ideas aren’t going to provide real competition, or he’s blowing smoke about competition protecting the consumer from a tax pass through. Unfortunately, I think both may be true.

And since when does a competitive market place make it harder to pass along a tax hike? Higher taxes would normally reduce the quantity supplied and/or raise the price. However, if you legislate that the quantity supplied can’t decrease — like in this same proposal to pass individual mandates for health insurance — the tax incidence will almost surely be squarely on the consumer.

Therefore, what Schumer is really saying is that he’s going to raise the cost of insurance in order to pay for insurance.

And if that makes sense to you, you’ve been reading too many healthcare reform proposals.

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Written by Victor

July 16, 2009 at 12:31 am

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