Tax Credits in the Obamacare Replacement Proposal

In the main, I’m opposed to these on a couple of grounds.  One is that it’s just more welfare; we need to find a way to move folks off welfare and into the labor force and jobs rather than keeping them trapped in the welfare cage—like we did when we originally reformed the food stamps program by requiring recipients to get a job or lose the stamps.  That reform not only reduced overall unemployment, it put recipients back into jobs (and off that welfare program).  These weren’t make-work jobs, either; net prosperity for those recipient families increased.  (Then the Obama administration withdrew the work requirement, and we got record numbers of folks back on food stamps).

The (refundable) tax credits are just more of this sort of subsidy, just in the form of a tax credit rather than a direct payment, like most subsidies are.

The other is that the tax credits won’t encourage health coverage providers to lower their rates and deductible requirements.  Quite the opposite, the credits would prop up those costs by allowing the providers to put a commensurate fraction of their charges onto the taxpayer: the credits would be used by the providers to make up the difference between what the coverage purchaser pays and what the provider charges.

On the other hand, the tax credits would approach acceptability under a couple of conditions: if the credits decline year-on-year to a final value of zero over some number of years, say, two or three; or the credits are sunsetted and disappear after some number of years, say two or three.  Or a combination of the two.

With those conditions, and with the understanding that both individual and State budgets need time to adjust, a disappearing tax credit, by providing that adjustment time, could become acceptable.

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