Monday, July 13, 2009

How we know the Democrats know their health reform plan isn't worth its cost. 

We know from how they intend to cover its price -- by dropping the tax cost exclusively on "the rich".
The proposal calls for a surtax on individuals earning at least $280,000 in adjusted gross income and couples earning more than $350,000, said the chairman, Representative Charles B. Rangel of New York. [NYT]
Compare this to the financing scheme of Social Security, which is funded with a payroll tax that lands on all employed workers -- the same people who are intended to benefit from Social Security. Thus, the people who receive benefits pay for them. They are willing to do so because in their mind the benefits they get are worth the price they pay.

This financing method was no accident. Franklin Roosevelt famously insisted on it so that workers would view their benefits as paid for with their own money, and thus earned, providing a bedrock foundation of political stability for Social Security, "With those taxes in there, no damn politician can ever scrap my social security program", while also removing any taint of it being a rich-pay-for-poor "relief" or welfare program.

(Payroll tax financing also stabilizes benefits in the other direction, against wanton growth. When workers pay for their own benefits, politicians lose the ability to buy votes by taxing the rich to pay for a free handout to every interest group that pleads a special case. Workers as a group support only benefit expansions that pay off for them. Today's Democrats may not appreciate this, but FDR did -- he was soldly in the fiscally conservative wing of his Democratic party, a Blue Dog by today's standards).

For these reasons, from FDR's time until today, every top administrator and trustee of the Social Security Administration has insisted that this financing method be maintained -- rejecting every proposal to add general revenue (income tax) financing to Social Security, and insisting that every dollar of tax paid into Social Security be eligible to earn some benefit. This is why there is a cap on the amount of wages subject to Social Security payroll tax -- because wages above the cap level earn no benefits.

And obviously, this financing scheme has been hugely successful (at least politically) for Social Security and its Democratic champions. FDR was no dummy!

So a logical question is: Why don't Obama and Rangel and the Democrats in Congress follow this successful model set for them by FDR, their hero, with their own plan?

The answer is: For FDR's model to work -- for workers to be happy to pay to get something -- they have to believe it is worth the price. And today's Democrats clearly believe that the average people who are supposed to be the beneficiaries of their health care plan won't think it is worth the price if the plan's cost drops on them.

Which is why Obama and the Democrats keep selling their health care reform to voters as "something for nothing"...
"The president is committed to enacting reform that will lower costs, protect choice of doctors and plans, and assure quality and affordable health care for all Americans," said Linda Douglass, a spokeswoman for the White House health reform office. "He has made it clear that we would not support a reform plan that would require people to leave their current insurance plans"... [AP]
Their promise is that people will get to keep everything they have to today, and get more too, plus the uninsured get insurance ... all for lower cost! But "lower cost" does not come in the form of new payroll tax subtracted from your wages to pay for it.

The Democrats have tied their political credibility to getting a health reform bill enacted. But clearly they have made the calculation that the average people whom they say would be the big winners under their plan will not provide the votes to pass it if they have to pay for it -- meaning, it would not be worth the cost to them.

Thus, to get the votes needed to pass it, they are following a time-honored political practice in all democracies: promise the many something for nothing, drop the full cost on the few.

But remember the lesson of FDR: Rich-pay-for-everyone-else benefit programs are politically unstable, tainted as being unearned "relief" or welfare, and tend to have unhappy fates. This is not the model to use if you can convince average citizens that their benefits are actually valuable enough to be worth paying for out of their own pocket.

The Democrats simply know that they can't convince the average citizenry of that.