Catastrophic politics - repeal of catastrophic health care tax

National Review, Nov 24, 1989

Catastrophic Politics

THE OLD tax-and-spend formula just doesn't work any more. About 30 per cent of the elderly either can't or don't buy any extra insurance for major health-care expenses not covered by Medicare, while the rest shop for the deal that suits them best. So Congress decided a uniform, nationalized "catastrophic health care" system just had to be imposed on everybody. And the traditional New Deal vote-maximizing strategy naturally meant shoving the costs onto a relatively small group with decent incomes (they're expendable Republicans anyway), so that those who might grumble about the added taxes would be outnumbered by those who were promised a free lunch. The hope was to sneak up on the docile "higher-income" elderly, starting with a 15 per cent surtax on any elderly person who owed even $150 in income tax. The maximum tax of $1,600 per couple would have initially affected only about 5 per cent of the seniors, so Congress figured it could easily handle their wrath. By 1993, the surtax would have jumped to 28 per cent, and a fifth of the elderly would face the maximum tax of $2,100 on any couple with an income of about $65,000--an income of precarious comfort in the major cities even now, let alone four years from now.

As it happened, these older sheep proved not so easy to fleece. The protests were appropriately loud and angry. James Roosevelt, FDR's son, led a protest campaign by a group of 5.5 million elderly voters. Ways and Means Chairman Dan Rostenkowski was so intimidated by elderly constituents, who nearly threatened him with catastrophic injury, that his committee quickly proposed soaking the elderly poor too--by doubling the tax on those with incomes below $15,000.

That apparently was the last straw. On October 4 the House voted 360 to 66 to repeal the program and the surtax. Two days later the Senate concurred, 99 to zero, on the surtax, keeping only that part of the program that covered hospital costs.

Even if this healthy tax revolt could somehow have been ignored, seniors would surely have retaliated by simply not earning or reporting the income that is supposed to be subject to the surtax. Already, the Commerce Department figures that some 27 per cent of pension income is not reported to the tax collectors, plus a much larger chunk of rental income received by seniors, not to mention unreported interest and dividends. And those who expected to be subject to the surtax because they currently continue working after age 65, such as older physicians, would have had a very powerful incentive to simply retire earlier, thus shrinking income- and payroll-tax receipts (and the supply of doctors).

There is no need to soak older people for a grandiose scheme they don't want, or even for parts of that scheme that are readily available from private insurers at a lower cost. Scuttle the tax and scrap the whole idea.