As part of the follow up discussions related to the impact of the Patient Protection and Affordable Care Act, much has been made in the last two weeks on statements put forth by Jonathan Gruber, PhD, in various speeches captured on video.
By way of background, Dr. Gruber was a paid consultant of the HHS and his work related to the implementation of Obamacare. Here are five takeaways from the recent controversy.
1. Dr. Gruber, a professor of economics at the Massachusetts Institute of Technology, essentially said that a tax on the insurance companies equates to a tax on individuals. He stated when we tax the insurance companies, this means they will simply raise their rates and essentially pass the tax on to individuals.
The Obama administration has arguably not been consistent in how it communicated the individual mandate. It was initially adamant that the provision was not a tax. As Marc Thiessen wrote in an opinion piece for The Washington Post yesterday: "Obama also insisted repeatedly that the individual mandate 'is absolutely not a tax increase.' In a 2009 interview with ABC News, George Stephanopoulos pressed him on it no less than five times. He even read Obama the definition of 'tax' from Webster's dictionary. Obama was adamant: 'My critics say everything is a tax increase. . . . I absolutely reject that notion.'"
Yet after the PPACA was signed into law, the administration then argued in front of the Supreme Court that the individual mandate was a tax. At one point, Justice Stephen Breyer even asked President Obama's solicitor general, Donald Verrilli, "Why do you keep saying tax?"
Dr. Gruber's comments underline the notion that the individual mandate was disguised as something other than a tax to help the law pass, but that facade quickly dissolved once it became the law of the land.
2. He also articulated that the American voter would not view this as a tax affecting them and would not understand that essentially the tax would be passed on to individuals. I.e., that the administration, in a populist way, could attack the big insurance companies but in reality shift the actual payments to a very broad range of individuals. In a video that came to light Friday, Dr. Gruber explained the Obama administration passed the "Cadillac tax" on high-value employer health plans by "calling it a tax on insurance plans rather than a tax on people, when we know it's a tax on people who hold these insurance plans."
Dr. Gruber said this was an exploitation of the American voter's weak understanding of economics. He worded this idea in a more explosive way at a panel discussion at the University of Pennsylvania in October 2013, which was captured on video. The comment in single quotes seemingly caused the greatest stir. "This bill was written in a tortured way to make sure [Congressional Budget Office] did not score the mandate as taxes. Lack of transparency is a huge political advantage. And basically, call it the 'stupidity of the American voter' or whatever, but basically that was really, really critical to getting the thing to pass."
3. When Dr. Gruber's comments came to light, they clarified for myself a basic tenet of taxing. The basic political concept is you tax a minority so the majority continues to vote for you. If you tax the top 1 percent, 3 percent or even 30 percent, it may have little political impact on your ability to gain votes from the remaining 70 percent to 99 percent. Such math seems to be taxation politics. Thus, you see more and more of the populist concept of "let's tax the rich" and not tax the rest.
The fallacy and the insincerity of this approach is apparent in the words of Dr. Gruber. As he said at the same panel: "In terms of risk-rated subsidies, if you had a law which explicitly said that healthy people pay in and sick people get money, it would not have passed. You can't do it politically, you just literally cannot do it. It's not only transparent financing but also transparent spending." In reality, most taxes ultimately get distributed out to or felt by a greater demographic in one way or another.
4. Like Dr. Gruber says, when taxing a certain part of populous, that burden is generally passed onto another part of the populous. For example, if you tax the rich, they often may take very little reduction in income, but they find a way to hire less people, spend less and reduce their total expenses in some manner. In essence, out of every revenue dollar, there is a certain amount of expenses a business can bear to pay or a wealthy person will or can bear to pay. If you raise taxes on the wealthy, they generally offset it by hiring less people or reducing their expenditures elsewhere.
5. There is an old cliché, often misattributed to Harry Hopkins, that goes along the lines of "tax and tax, spend and spend, elect and elect" — the concept being that elected government can tax, distribute monies broadly in numerous to constituents, keep government expenditures high and still win elections. While there is a long way to go fully have the population understand how tax policy really works, Dr. Gruber's remarks provide helpful insight.
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