Think Tank Sounds Fiscal Alarm Bells Over US Health Care Bill

by Mike Godfrey, Tax-News.com, Washington

12 November 2009

The Center for Freedom and Prosperity (CF&P) has warned that the United States is heading for a "fiscal train wreck" if health care proposals in their current form are accepted.

In a new critique of proposed health care reforms, the CF&P argues that allowing the government to have a much bigger role in the provision of health care will inevitably lead to higher deficits, despite assertions from the authors of the legislation that the provisions are effectively "revenue neutral" because the costs are offset by new taxes.

"If you look at the budgetary history of government-run healthcare the forecasters are routinely too optimistic," commented CF&P Foundation President Andrew Quinlan.

"We are not talking about trivial errors. Medicare was 10 times more expensive than first forecast and a part of Medicaid cost 17 times more than taxpayers were led to believe. No wonder the American people do not trust Congress and its supposed forecasting experts," he added.

"Government-run healthcare will increase the size of government, increase the deficit, hurt upward mobility and undermine our economy," added Dan Mitchell of the Cato Institute.

"The House plan is a budget buster and the Senate plan is a budget buster," Mitchell concluded.

On November 7, the House of Representatives passed the Affordable Health Care for America Act by the narrow margin of 220 votes to 215. According to House Ways and Means Chairman Charles Rangel, the legislation will cover 96% of Americans by 2015 under updated health insurance provisions, while reducing the deficit by "tens of billions of dollars" over the next decade.

The Congressional Budget Office (CBO) estimates the net cost of expanding coverage at USD891bn, just under the USD900bn coverage mark laid out by President Obama in September. A substantial portion of the bill's cost is paid for with a proposed "surtax" of 5.4% on those with adjusted gross income above USD1m (married filing a joint return) and USD500,000 (single). It is estimated that this will raise USD460.5bn over 10 years.

The bill also attempts to limit the potential for tax avoidance by restricting tax treaty benefits and codifies the "economic substance doctrine" used by courts to determine whether company transactions and financial arrangements are structured purely to avoid tax.

Recommended