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By Peter D. Schiff
Guest Columnist
Money Morning
The healthcare bill unveiled last week by the U.S. House of Representatives (with the full support of the Obama administration) is one of the worst pieces of legislation ever drafted.
If passed, President Obama's healthcare plan will reduce the quality and increase the cost of healthcare in America. But more importantly, it will severely undermine our already weak economy. To burden a country currently in the throes of a violent recession with such a bureaucratic albatross clearly illustrates the scarcity of economic intelligence in Washington.
In the first place, specifically taxing the rich to pay for healthcare for the uninsured is the wrong way to think about tax policy and is an unconstitutional redistribution of wealth. While the government has the constitutional power to tax to "promote the general welfare," it does not have the right to tax one group for the sole and specific benefit of another.
If the government wishes to finance national health insurance, the burden of paying for it should fall on every American. If that were the case, perhaps Congress would think twice before passing such a monstrosity.
In the second place, the healthcare bill is just bad economics. For an administration that supposedly wants to create jobs, this bill is one of the biggest job-killers yet devised. By increasing the marginal income tax rate on high earners (an extra 5.4% on incomes above $1 million), it reduces the incentives for small business owners to expand their companies.
When you combine this tax hike with the higher taxes that will kick in once the Bush tax-cuts expire, and add in the higher income taxes being imposed by several states, many business owners might simply choose not to put in the extra effort necessary to expand their businesses. Or, given the diminishing returns on their labor, they may choose to enjoy more leisure. More leisure for employers means fewer jobs for employees.
More directly, mandating insurance coverage for employees increases the cost of hiring workers. Under the terms of the bill, small businesses that do not provide insurance will be required to pay a tax as high as 8% of their payroll. Since most small businesses currently cannot afford to grant 8% across-the-board pay hikes, they will have to offset these costs by reducing wages. However, for employees working at the minimum wage, the only way for employers to offset the costs would be through layoffs.
The uninsured self-employed, or those working as independent contractors, will be forced to buy insurance or pay a tax equal to 2.5% of annual income. Either choice will divert resources from more productive uses into an already out-of-control healthcare bureaucracy.
Sadly, the bill does nothing to restrain or alter the dynamics that have caused healthcare costs to spiral ever higher. In fact, the bill will intensify these pressures.
The simplest explanation of why healthcare costs so much is that demand exceeds supply. Demand is a function of how much people are prepared to pay. Insuring more people will drive demand for healthcare services even higher.
As costs continue to soar, expect additional tax hikes to fund the added expense. As these additional taxes further encumber a weak economy, the diminished tax base will yield lower total tax revenues – despite higher rates. As the politicians attempt to
The worst part of the whole fiasco is trying to imagine the bureaucracy necessary to administer this plan. My guess is that the government provider will mis-price its policies on the low side, pushing employers to dump private sector insurance for the taxpayer-subsidized alternative. Such a system will further distort healthcare pricing and, ultimately, make a bad situation intolerable.
The enormity, complexity, and expense of this bill could well pull the rug out from what many of my cheerleading colleagues believe to be the beginning of an economic recovery. The way I see it, the economy is walking dead anyway, and this measure is the equivalent of a stake through the heart. But even if we manage to escape the grave this time, Congress is working on a few other ideas that will surely keep us buried.
[Editor's Note: Peter D. Schiff, Euro Pacific Capital Inc.'s president and chief global strategist, is a well-known author and commentator, and is a periodic contributor to Money Morning. Schiff is the author of two New York Times best sellers: "Crash Proof: How to Profit from the Coming Economic Collapse," as well as "The Little Book of Bull Moves in Bear Markets." For a more-detailed look at the United States' ongoing financial problems – and for some strategies that will help you protect your wealth and preserve your purchasing power before it's too late – download EuroPac's brand-new free special report, "Peter Schiff's Five Favorite Investment Choices for the Next Five Years."
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News and Related Story Links:
- Money Morning:
Why Minimum Wage Represents Maximum Stupidity
- BarackObama.com:
BARACK OBAMA AND JOE BIDEN'S PLAN TO LOWER HEALTH CARE COSTS AND ENSURE AFFORDABLE, ACCESSIBLE HEALTH COVERAGE FOR ALL
- New York Times:
Should the Rich Pay for the Uninsured?
The principle of "reducto ad absurdum" shows the fallacy in this diatribe. Increasing taxes, God forbid, to where they used to be or more is claimed to shut down all incentive for industrious business! Give me a break! So, would the writer claim that all taxes should be abolished to make this nation the most prosperous it can be? Oh-oh, that might mean we have NO services, such as fire and police, that our roads degenerate into a succession of potholes . . . you get the idea. It is just a matter of degree, not a principle of fact,… Read more »
What a blowhard.
Our goal should be to cover all individuals through private health insurance. We are not prepared to turn our health system over to the government. Advocate for greater transparency in both quality and price information. Place both the decision making ability and healthcare dollars in the hands of the consumer. Support the Friends of the U.S. Chamber and sign the Health Care petition at http://www.friendsoftheuschamber.com/takeaction/index.cfm?ID=40 .
I'm self-employed, with high blood pressure. I've been taking the same dose of the same generic hypertension pill for ages. Voila, blood pressure normal. Our family's health-insurance policy from a non-profit HMO, a really good one that does a sincere job of prevention, keeping costs down, and, yes, "rationing health care", has DOUBLED in the last four years to just under $24,000 per year. It's the same price charged to that of every self-paying family in our geographical area. $24,000 a year! We're not big users; several months can go by without any of us contacting the HMO in any… Read more »
The idea that government can run anything effectively is a joke. The great obeyme doesn't even know what is in the plan. When asked about certain statements in the plan he claims that he doesn't recognize them as part of HIS plan. What a flat out liar or extremely poor leader.
Barack Obama will never say to your face what he actually plans to do -or achieve- with these huge new government programs. Rather, you get some specious auditory performance with styrofoam props to wow the plebes, like the tacky greek columns in Denver. To him, the revolutionary ends justify the Alinskyite means- so the Dear Leader just tells you whatever he needs to. And the truth is that Obama is out to nationalize health care.. they'll be no private insurance industry left after five years of Obamacare… but of course he's lying about it. As for the American public, the… Read more »
Barack Obama will never say to your face what he actually plans to do -or achieve- with these huge new government programs. Rather, you get some specious auditory performance with styrofoam props to wow the plebes, like the tacky greek columns in Denver. To him, the revolutionary ends justify the Alinskyite means- so the Dear Leader just tells you whatever he needs to. And the truth is that Obama is out to nationalize health care.. they'll be no private insurance industry left after five years of Obamacare… but of course he's lying about it. As for the American public, the… Read more »
If I didn't read the name of the author at te beginning, I would have thought that this article is written by Rush Limaugh or one of his assistants. I would like to advise the author to visit World health organization website to find out that US citizens pays the highest health insurance bill and receive the lowest health insurance benefits for their dollar. Yes, we have the brightest minds and the best technologies but it is only available for those who can afford paying for it. The average American, if insured, doesn't receive better treatment or service than the… Read more »
It is not just Obama's healthcare plan, it is every plan he is trying to pass that is and would be a disaster. The man does not have the best interest of America or Americans in his agenda. It is all about him and power and control. He is a disaster as well as his administration. Wake-up America before the Nation is destroyed.
@Robin, with all due respect: I think that the government, for one, put men on the moon very effectively, and at a much smaller level of things, I can count on the U.S. Mail postman to be at my door six days a week between 9 and 10 a.m., just like clockwork. It's just foolish to mindlessly repeat a backwoods GOP claim like the one you began with, unless (just wondering) you've actually got no hope at all that the armed forces can't protect your country or kill huge numbers of our enemies, the fire department in your town doesn't… Read more »
I find very creditable the element of no Constitutional authority to take from one group to give to another.
A few words from the founders is relevant here:
Thomas Jefferson:
"The democracy will cease ti exist when you take away from those who are willing to work and give to those who would not"
"I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them"
"To compel a man to subsidize with his taxes the propagation of ideas which he disbelieves and abhors is sinful and tyrannical"
In the last 10 years, my immediate family members have had back surgery, bladder surgery, trips to heart specialists, countless trips to doctors and emergency. It didn't cost us a dime because we're Canadian, we get more for less because we don't have HMOs or "pre existing conditions". Our government runs the show, it's not perfect but it's a hell of a lot better than what the US has, nobody goes bankrupt because they get sick (happens every 30 seconds in the US) and nobody loses their healthcare when they lose their job because they can always opt for the… Read more »
what happened to my post ?
@darrell jr. Millions of Americans saw their tax money going to George W. Bush's self-proclaimed "War on Terror" in ways they probably saw as "sinful and tyrannical", but they had to pay up or go to jail. When, and I say when, we have Thomas Jefferson, sad to say, was both a beautiful writer and a frequently vicious and deceitful hypocrite at the same time. I prefer the sincere and noble George Washington, not as good a phrasemaker as Jefferson but a far, far better man, who demanded that the Continental Congress raise the cash that was needed for the… Read more »
May I add the following, accidentally deleted lines: "When, and I say when, we have a national health care system, you'll face the same choice. When we're both dead, your unborn descendants will in all probability grow up taking the system for granted and wondering why it wasn't always so. After all, slavery, debtors' prisons, and hanging 14-year-olds for petty theft were once familiar aspects of our Anglo-American, so-called "Judeo-Christian" culture, and I don't suppose even the crew at The Weekly Standard would want those days back, although I can't read all their hearts."
Obama may be genuine in his efforts to promote nationalized health care options, and obligations. But given his rapid fire introduction of this and many other programs our country would struggle to afford under the best of economic conditions, and his alleged superior intelligence, it appears more likely his true agenda is to wreck our country, to turn the USA into a "USS of A" (think USSR) in which he and other elitist ideologues rule over the rest of us. Recent political rhetoric has elevated national health care from a "right" (which it is not under any reasonable interpretation of… Read more »
Insurance companies provide the 4-8% administrative costs at a cost of 24% of all health costs. They are the person in the doctor's office rationing your care. If you have a pre-existing condition, the insurance company won't insure you, or will charge an outrageous premium. I have had government health insurance for 3 decades, for which I pay $500 a month for my family plan, plus co-pays. There is no government interference, only (HMO) insurance company rationing, but not much. It doesn't pay for cosmetic or elective treatment, but does cover most other things. It is simply good care at… Read more »
Just a bit of advice from one who has lived 40 years in France who has one of the very best medical system in the world (ask WHO) and, now 36 years in the USA who used to have a caring approach to the sicks and even, sometimes the poor. I was recently on a trip to France and ran short of médications; I asked my doctors to send me prescription to be filled in French pharmacies. I am on Medicare through one of those very rich American insurance companies with a name starting with an H… which have very… Read more »
Who is this idiot Schiff? How much was he paid for his absurdly distorted opinions?
I have seen both the American and British healthcare systems up close and personal for many years. Britian has a better healthcare system than the America at a lower cost. I'm all for copying their system. This should have happen many years ago, but we had far too many Congressmen and Presidents who had been bought off by our healthcare monopolies. Personally, I find it refreshing that we finally have a President and Majority Congress who are actually on our side for a change! Go Obama!
Let's look at this for what it really is, a wealth transfer program. This is not about health care or health care reform. This is about health insurance which is about money rather than care. Go back 20 years when prescription medications first started to be included in health care plans. The result was that the price of these medications rose by 30% to 40% a year for many years. This is not a supply and demand result. Now look at something like laser eye surgery which a decade ago cost about $3,000 per eye. Health care plans decided not… Read more »
What is stunning to me is the fact that our current system just sort of evolved post WW2. There was really no strategy or plan to arrive at our current situation. Why does corporate America decide who does and who does not have health care. And why can't the current insurance companies offer the uninsured coverage with a subsidy from Uncle Sam? Does this thing really have to be this complicate? Oh I forgot, the US Congress is involved.
Canadian here. Well Mr. Schiff, I think you've been smoking some really good stuff down south (I am Canadian, remember this, and down south means the good ol' USA). Up here, healthcare isn't a privilege, it's a right, for every member of our country (who is legal, of course). And I hate taxes as much as everyone else, but everybody needs their health. Can you imagine for a moment that someone you knew, who had their insurance cancelled for whatever reason, was denied healthcare for an illness that could end up being fatal? I guess not, because if you did,… Read more »
I have no quarrel with universal health care. What troubles me is that President Obama urges the American people to support that idea without specifying what his "plan" is. I submit that by leaving the plan to the congress, he has done himself and the American people a misservice. If what he has done is called leadership, he's been leading us into a fog. People laughed at Ross Perot when he used charts to explain his views. I think Mr. Obama would be far more persuasive if used visual aids (besides his almost omnipresent teleprompter) to explain to the American… Read more »
I agree those in Washington don't have a clue and clearly need a remedial course in problem solving. To solve a problem or to develop a remedy yoy must first define the problem and its causes. I don't see and have not seen one attempt at defining the problem or its causes only a lot of rhetoric and smoke. What are the real issues? Cost, availability and quality. What are the issues that are driving cost? Procedures, legal reuirements, malpractice insurance, system abuses and any others that must be considered. What are the issues tha limit availability? Who should have… Read more »
Why has not one health care analyst proposed a lifetime, per patient cap on exposure to HMO's, the overage to be paid by the Government? This simple actuarial change along with mandated centralized paperwork processing could immediately cut the cost of health care premiums by 30% or more. Why has this not been raised by ANYONE???????????????????????????????????
P.S. History has shown that we have experienced the highest rates or relative economic expansion during periods of highest marginal tax rates. I built three highly successful businesses when individual and corporate tax rates were at their highest.
Just keep one thing in mind…and you've probably not run a business in a lawless, poorly governed, and corrupt country, which I have…it's easy to talk like a libertarian when no one is shooting at you.
Dean Romano, dpromano@gmail.com
P.S.S. You give great advice. We share the same contrarian view of the economic world. I also agree that taxes should be eliminated, period, but some form or central government is necessary to the security required to work in the safety we work in. So what's the answer? I agree wholeheartedly that taxing the wealthy will not prove fruitful. But doing nothing about health care, as we've done for 100+ years since it was first proposed, will KILL small business. I laid off three 25+ year employees recently because they were very marginal and $2000/month health care premiums and $4.00… Read more »
This dissertation on the author's abysmal ignorance of Universal Health Care is paramount in his article. Present health care premiums, employer/employee contributions to privete insurance plans that are being shovelled into profits for shareholders and bonuses for executive administrators. President Cartre once referred to this group as the Medical Mafia and these are the same groups that for whom Limbaugh and his likes in the Republican Party are fighting. Every G8 country has a Universal Health coverage which offers peace of mind to all of their citizens and this is to the detriment of the United States where Senate and… Read more »
I understand this a money site, but maybe some people should discuss how this reform is a death sentence to all our elders. We work all our lives to one day retire, and enjoy the remaining years in our life. With this plan, they'll make sure those days are numbered. Absolute evil at work here people. If you don't know about this fact – go look it up. Our health care system is terrible right now – obviously. I don't think anyone is really going to argue that. But do we really need to go with the very first thing… Read more »
The debate over any specific policy, whether Healthcare, Auto bailouts/bankruptcy/takeover or banking misses the point. Even the Democrats and Obama don't know the specifics, so how can they be argued?? Look at the Cloward-Piven strategy at work. Cloward was a 1960's liberal professor of social work at Columbia University. His vision was to destroy capitalism by overwhelming the beaurocracy with expanding entitlements! To accomplish this, he began a grass roots organization of the welfare community into the National Welfare Rights Organization. Even conservative legislators are so busy swatting flies that they cannot think about putting up screens. Obama has been… Read more »
As a Canadian with the Socialized Medical system, is beneficial as a whole to the masses in general, there are too many people in US Citizens who are out on Streets, new immigrants, elderly etc. A nation who puts in trillion dollars of wealth to help investment houses and banks to be bailed out, should feel ashamed that they cannot take on simple responsibility of those who are less fortunate to be able to afford health. The cost and bureaucracy may increase. Do not let your politicians tell you the candian system does not work. Agreed it is not perfect,… Read more »
I like President Obama, why are you not agree with what he is doing?
This plan has good and weak parts. He should concentrate more on the good ones.
Healthcare costs have been inflating at 6-10% for years, and in the not too distant future, healthcare costs will be ½ or more of our economy, with obvious disastrous consequences. We have to do something. In today's environment insurance companies pay 35% of costs, the government pays 45% of costs, and with our regulatory system and the FDA, we don't have capitalism. Our system allows the medical practitioner to reap huge profits from a captive customer base with little no competition. Healthcare workers compensation has been growing and is out of line to the rest of the economy. In today's… Read more »
As a Canadian I applaud what Obama is doing. Raising the living standard for all Americans and not just a select healthy few. All that's promoted in the states is the long lines. I rarely wait 1/2 hour or more at a walk in clinic to take my sick children in when they are sick. I don't pay a dime but I pay more taxes compared to Americans at the same income level. I don't pay for healthcare costs out of pocket. I can have a pre-existing condition but I am still covered. Why would you throw something like that… Read more »
the reason why the healthcare cost are rising dramatically over time is due to the fact that the supply side of the service is not catching up with demand. For example is one needs a knee replacement a screw will be charged around 900 dollars, this screw with the same specifications same dimensions and same standards will cost in a warehouse 90 cents. The reason of this stems from government overregulation in the supply side of healthcare that doesnt allow new players or companies to enter and satisfy the demand, not to mention greedy lawyers ready to file class action… Read more »
Healthcare for all is a worthwhile idealistic goal. However, the USA cannot afford it. More taxes will only depress the economy to make tax collections even less. We do need to consider where most Medicare money goes. By far, most of it is spent on the last year of a person's life, as well as supporting nursing home patients who are far beyond a beneficial life for themselves or anyone else. When a person reaches that point, we should think stongly about euthanasia. Skeptical? Take a visit to any nursing home, and ask yourself if you want to live under… Read more »
Mr. Schiff's basic premise, that the plan currently being debated will increase costs, reduce coverage, eliminate jobs, and disincentivise small businesses from expanding is spot on. He does, however, completely miss the mark on one point – his apparent belief that an additional 5.4% tax on those with incomes above $1 million will actually make a dent in paying for the plan. Any idiot who actually reports income of more than $1 million deserves not only a 5.4% surtax, but an additional tax of FIFTY point four percent! Anybody intelligent enough to be earning more than $1 million per year… Read more »
Valid points by the author: I agree that an 8% tax on the payroll of businesses who do not offer health insurance would hurt many small businesses. Restaurants, for example, pay their tipped employees one-half minimum wage as each server is taxed 8% of their gross sales to account for their tips (implying that their tips amount to 8% of sales). The 8% which currently goes to the government comes directly out of the pockets of the tipped employee, which goes to the employer to cover the taxes in exchange for their cash tips. Hitting employers with an additional 8%… Read more »
People like B K are the exact kind of people who are dangerous to progress. He can only spout insults against those he disagrees with and says they don't deserve to live. Such is the mindset of most fools who advocate nationalized healthcare.
Just as all other wealthy conservatives, Mr. Schiff is more concerned about his portfolio than the welfare of the American people. Does he offer any alternatives to President Obama's healthcare legislation? Uh, no. I believe it was a crime, dating back to the Nixon Administration, to allow insurance companies to profit from healthcare. Health care should NOT be a commodity to earn dividends for its shareholders. But, try and ween the insurance companies from the healthcare 'industry'. That is what we are really up against. It will take a miracle but a miracle is what we need!
Anyone who votes to tax health care benefits will be looking for a new job next year. Obama's immediate jump to the center has cost him his relevance. The selection of Wall Street insiders Geithner and Summers and giving in to Wall Street was strike one. His support for continuing the Wars, protecting the War criminals and continued massive defense spending was strike two. Now his complete collapse in the health care debate is strike three. The republicans have kicked his teeth in and all he could do was smile, call for bipartisanship and offer to sing Kumbaya with them… Read more »
The best news is that the proposal is geared toward reconciliation so it's a shot across the GOP's bow. I would be shocked if this bill didn't go to reconciliation and that is probably still the best chance to get better legislation.
President Obama's healthcare plan will only undermine our already weak economy.