With Deferral of Obamacare Fix, It’s Time to Focus on Simplifying Tax Code

Hank Adler,

The hopefully temporary deferral of the repeal and replacement of ObamaCare represents a great opportunity to simplify the tax code and re-organize federal welfare payments. It also represents an opportunity to make some long term progress on slowing the continuing increase in the cost of healthcare.

• Eliminate every tax credit in the Internal Revenue Code along with every calculation of tax except the regular calculation of tax based upon taxable income and the self employment tax.
• Consider the earned income credit and every other credit being paid to individuals or reducing any individual’s tax burden to be a welfare payment. Eliminate these credits and consolidate all federal welfare payments under a single agency or under an upgraded social security system.
• Understand that whether it be ObamaCare or a new health insurance program, unless the supply of doctors, nurses, physician assistants etc. is increased, the increased demand for health services will continue to drive up costs. There would be incredible benefits to all citizens if the federal government subsidized the creation of new and expanded medical schools as well as new physician assistant and nursing programs. The development of these new healthcare professionals can only be a positive.

In 1972, when George McGovern recommended a negative income tax and refunds to individuals below the poverty level, he was wrong. Today, the federal government is paying close to $100 billion dollars in negative income taxes and it remains a poor approach to welfare. It is poorly directed and fraught with fraud. It has turned the Internal Revenue Service from a tax collection agency into a welfare bureau.

The recently abandoned Republican healthcare plan creating tax credits for health insurance would have tipped the scales further towards the Internal Revenue Service administering the largest welfare programs in the United States rather than performing as a tax collection agency. The current system already disguises the amount of welfare being paid; the abandoned Republican proposal would only further disguise the vastness of the federal welfare system.

Whether under Social Security or under a new agency, the centralization of federal welfare away from the Internal Revenue Service along with the elimination of all tax credits and a single tax return tax calculation will benefit all Americans. Once the calculations are removed from the Internal Revenue Code, both preparation of tax returns will be easier and enforcement of the law will be dramatically enhanced. (These are not the only changes necessary to the Internal Revenue Code, but it is a sensible starting point.)

If the federal government is going to pay welfare, whether a subsidy for healthcare insurance, food stamps or the equivalent of an earned income credit, let it be centralized, properly managed and transparent. Today, welfare is dispensed from a bevy of federal agencies and virtually no one coordinates the amounts paid and the appropriateness of multiple payments to the same recipients.

Finally, even the most ardent liberal economics professor understands that increasing demand without increasing supply is a formula for increasing prices. The regulatory and financial barriers to opening or expanding medical schools, creating physician assistant programs or nursing programs essentially block any attempt to move the supply curve and reduce costs in the long run. The federal government must do everything it can to expand supply, be it more doctors, more nurses etc. When supply increases dramatically, the impact on pricing can be dramatic.

There are no losers in consolidating and creating transparency in the welfare system or simplifying the tax code. There are equally no losers in ramping up the number of healthcare professionals.