sean's place

Socializing Medicine by Taxing the Rich

So, I had this thought just a minute ago (literally as I was closing my eyes to go to sleep). This thought is half-baked at best. (disclaimer over)

For some reason, I remembered that during President George W Bush’s administration, one of his economic principles was the “trickle-down” methodology. To me, this meant as approximately this:

1. Lower taxes on higher income brackets.
2. The high-earners now have more money to spend.
3. The high-earners spend money and that stimulates the economy.

So, by using that logic, it seems that if we were to socialize medicine (disclaimer #2: I have no particular feelings on healthcare reform other than I think something should be done and that I’m not smart enough nor informed enough to know precisely what we should do) by taxing the rich, we would in essence be re-capturing a pre-existing expense (that is: health insurance for employees) as a “tax.” I think it might even be net-zero.

Let’s see:

1. We “socialize” medicine by taking the cost of health insurance out of the regular economy and assigning it to the government; this removes a huge cost burden on American companies (may help them stay competitive with international firms, too)
2. Big-time investors in these companies realize higher dividends due to higher profits driven by lowered costs.
3. Raise taxes on the very wealthy to pay for this healthcare, some (most?) of whom may be the very same big-time investors (in the aggregate of their investments).

In essence, because the government (“the people”) assumed the cost of healthcare in this scenario (which some have called a “crushing cost”), private investors would see higher dividends on their investments. We would then (indirectly) tax those gains away to pay for it. It’s possible the effect would be net-zero (or even net-positive if costs are actually lowered) in the long term. So, in the end, we improved the efficiency of the private sector and converted pre-existing costs into approximately equivalent (maybe even lower) taxes.

(Note #1: This idea conveniently ignores tax-sheltered investments and small-time investors; it also presumes that lower costs will not translate to lower consumer pricing. Also, this idea is lacking in specific numbers; this is further evidence of my overall lack of economic sophistication.)

(Note #2: The thought that “socializing” medicine may lower costs is on the basis that Medicare has very low overhead (I’ve heard 2-5%) versus private insurers (I’ve heard 25-35%). Also, I imagine if there was a single-payer, that the medical billing costs in doctors offices would lessen.)

(Note #3: This also assumes the size of the problem stays the same. This is probably not true as the goal of healthcare reform is to cover more people/everyone. See note #2 though.)

See what I mean about half-baked? Now time for bed.