July 29, 2003

July 29, 2003 | WebMemo on Health Care

Medicare Malady #12: Prescription Drugs Bad Medicine for Tax Reform

Making prescription drugs a Medicare entitlement could be poison for tax reform.

The costs of the $400 billion drug proposal, currently being hammered out by a Capitol Hill committee, would make proposals for a pro-growth tax system in America harder to achieve, says Heritage Foundation tax expert Daniel Mitchell in a July 25 study.

Some future tax reform ideas that would likely be scrapped include:

• Alternative minimum tax (AMT) repeal. This tax is a "Catch-22" system that forces many taxpayers to calculate their taxes twice. If this results in a higher tax liability, the taxpayer must pay more.

• Corporate tax rate reduction. America has a top corporate tax rate of 35 percent-the highest of any developed nation. This hinders the competitiveness of U.S.-based companies.

• Universal IRAs. People should not be taxed twice on income that is saved and invested, which is why individual retirement accounts should be universal.

• Ending territorial taxation. The United States taxes income earned in other nations-even though this income is already subject to foreign tax.

"Many of the reforms needed to bring the tax code closer to a simple and fair flat tax involve a reduction in tax revenue," Mitchell writes. "This will be a daunting challenge."

Read more of Mitchell's study and other Medicare research at heritage.org.

For more information or to receive an e-mail version of "Medicare Maladies," contact medicaremaladies@heritage.org or call Heritage Media Services at (202) 675-1761.

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