January 20, 2011 | WebMemo on Health Care
The Patient Protection and Affordable Care Act (PPACA) imposes numerous tax hikes that transfer more than $500 billion over 10 years—and more in the future—from hardworking American families and businesses to Congress for spending on new entitlements and subsidies. In addition, higher tax rates on working and investing will discourage economic growth both now and in the future, further lowering the standard of living.
Table 1 lists all of the tax increases in PPACA.
As a result, the tax hikes in PPACA will slow economic growth, reduce employment, and suppress wages. These economy-slowing policies could not come at a worse time. PPACA tax increases will impede an already staggering recovery.
They Will Slow Economic Growth and Destroy Jobs . Taxes transfer money from productive private hands to the less efficient public sector. A politicized allocation is less efficient than market-based allocation because political decisions do not consider the highest-value use of resources, while the private sector considers such issues and therefore does a better job of assigning resources where they will contribute the most to economic growth.
They Will Discourage Work and Savings. Congress must levy high tax rates to take more Americans’ money, and this has a number of negative implications. Higher tax rates decrease the incentives for individuals to work and save more, both of which are essential for economic growth. Additionally, high rates discourage individuals from working harder and saving larger portions of what they earn. Combined, these two effects impede economic growth and reduce the number of jobs that businesses would have created had tax rates been lower.
They Will Not Reduce Deficits. Higher taxes never close budget deficits because, in the short run, Congress will spend all of the extra revenue it receives from higher taxes. Congress always spends every dollar of tax revenue it raises and however much it can borrow from credit markets. In the long run, the extra revenue will dissipate as individuals adjust their behavior to minimize their tax liability. The only way to close deficits is to cut spending and align it with how much revenue the tax code typically raises.
A New Direction
All tax increases have negative economic effects because higher taxes take resources from the productive hands of the private sector and transfer them to the wasteful hands of politicians. Higher taxes also lessen the incentives for individuals and businesses to engage in activities and behaviors that expand the economy and create jobs.
The tax code is a severe drag on the economy and is badly in need of fundamental reform. Ideally, a revised tax code would adhere more closely to the well-known flat tax. This new tax system would tax all wage and salary income at one rate and provide for only minimal deductions, credits, and exemptions. Tax reform is not an excuse to raise taxes. The new tax code would raise the same amount of revenue as the current system but in a more efficient manner in order to enhance economic growth.
Curtis S. Dubay is a Senior Analyst in Tax Policy in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.
Congress cannot build sound market-based health care reform on the foundation of a flawed health care law. Therefore, the health care law must be repealed in its entirety.
The House of Representatives has taken a major step towards full repeal of the Patient Protection and Affordable Care Act (PPACA—otherwise known as “Obamacare”). Until full repeal occurs, Congress must continue to focus on the core failures and consequences of PPACA and block its implementation to allow time to achieve repeal and lay the groundwork for a new market-based direction for health care reform.
Patient Protection and Affordable Care Act of 2010, Public Law 111–148, and Health Care and Education Reconciliation Act of 2010, Public Law 111–152.
Joint Committee on Taxation, “Estimated Revenue Effects of the Amendment in the Nature of a Substitute to H.R. 4872, the ‘Reconciliation Act of 2010,’ as Amended, in Combination with the Revenue Effects of H.R. 3590, the ‘Patient Protection and Affordable Care Act (“PPACA”),’ as Passed by the Senate, and Scheduled for Consideration by the House Committee on Rules on March 20, 2010,” March 20, 2010, at http://www.jct.gov/publications.html?func=startdown&id=3672 (January 14, 2011).