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The Knee-Jerk Opposition

By Ruth Marcus
Wednesday, January 24, 2007

If George W. Bush proposes something, it must be bad. Such is the knee-jerk state of partisan suspiciousness that when the president actually endorses a tax increase -- a tax increase that would primarily hit the well-off, no less -- Democrats still howl.

Such is the level of distrust that when the president finally disavows the free lunch and comes up with a program not financed with deficit spending -- indeed, one that would actually bring in extra revenue as the years go on -- Democrats still howl.

Listening to Democratic reaction to Bush's new health insurance proposal, you get the sense that if Bush picked a plank right out of the Democratic platform -- if he introduced Hillarycare itself -- and stuck it in his State of the Union address, Democrats would churn out press releases denouncing it.

This sad situation is largely of Bush's own making. He is reaping the poisonous state of affairs that he helped sow for six years. So many of the president's policies have been dishonest and wrongheaded, so much of his politics has been slashingly partisan, Democrats would be crazy if their instinctive reaction to a Bush plan for fill-in-the-blank wasn't intense distrust.

It's too bad, because the president's proposal to cap the deductibility of employer-sponsored health insurance deserves more of a chance than Democrats, from their initial reactions, seem inclined to give.

Instead of the irrational current system, in which all employer-sponsored health-care costs are deductible, Bush would create a standard deduction that would replace existing deductions for health insurance, both employer-sponsored and privately purchased, and other medical costs.

The deduction would be $15,000 for a family policy, leaving 80 percent of those with employer-sponsored coverage unaffected.

Yes, the plan should be more progressive, structured with refundable tax credits rather than a deduction, so that all can share equally in the benefit.

Yes, there are big risks involved, primarily that the already-teetering employer-based system will collapse as healthy individuals use their tax deduction to buy cheaper, private insurance, leaving employers with the older and the sicker.

And, yes, it's fair to argue that a more comprehensive approach -- Sen. Ron Wyden (D-Ore.) has proposed one -- is needed.

But Democrats -- if they care more about addressing health-care needs than scoring political points -- ought to be finding ways to improve and build on the Bush proposal, not condemning and mischaracterizing it. Given that nothing's going to pass without Democratic approval, what's the risk in engaging in the discussion?

The Bush plan starts with an assessment that has long been clear to sensible people across the political spectrum: The way the tax code now treats health insurance is unfair, regressive and counterproductive.

The fact that employers can deduct the full cost of health insurance premiums means that the richer you are, the bigger tax benefit you reap. That built-in advantage is exacerbated by the fact that the better-paid tend to have pricier insurance.

This unlimited subsidy increases wasteful spending, encouraging employers to purchase gold-plated plans and employees to use them. This drives up the cost of health care and, ultimately, insurance in a vicious cycle that ends up increasing the ranks of the uninsured.

Meanwhile, those who don't have employer-sponsored coverage get no tax break; the Bush plan would not only help those who already buy insurance on the private market, it would also encourage those currently uninsured to purchase coverage.

As Jason Furman, a leading Democratic economist, wrote last summer in Democracy: A Journal of Ideas, "[R]educing subsidies for pricey plans would likely lead to a health insurance system that includes more cost sharing, promotes more consumer consciousness, and plays a modest, but potentially meaningful, role in restraining health spending."

And so what do Democrats say when a Republican president suggests doing something along these lines? "It's a bad policy," House Ways and Means Committee Chairman Charles Rangel (N.Y.) told the New York Times. "We are trying to bring tax relief to the middle class. The president is trying to increase their tax liability." Likewise, the Senate Democrats complained: "President Bush's Health Insurance Proposal Amounts to a Tax Hike for the Middle Class."

This is flat wrong: According to the administration's analysis, on average, the top fifth of taxpayers would face a tax increase; the rest would save money.

If you doubt that some variation on Bush's plan is at least worth considering, try this thought experiment: What if the current system had the standard deduction that Bush wants and he was proposing, instead, to remove the cap and allow unlimited tax breaks, a benefit for the better-off and those with the priciest insurance?

Wouldn't Democrats be denouncing that, and demanding my imaginary status quo?

marcusr@washpost.com

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