Yesterday, the Senate finance committee passed the Baucus bill, well wasn’t a bill, but a set of ideas. One only need to look at the new $507 billion in new taxes to see why government should leave the reform to the private sector. This bill will not only drive up demand, thus driving up costs, but it will also drive down supply and stunt job creation. Obviously, if supply is driven down, cost also go up, and without job creation people can’t afford health insurance anyways. Ok, so let’s take a look at these new taxes and see how they will affect the market. Below is a list of new taxes from CNSNews.com.

(CNSNews.com) – The health-care bill that the Senate Finance Committee will vote on today will cost a total of $829 billion over 10 years, with $507 billion of that cost being covered by new federal taxes and fees, according to the Congressional Budget Office (CBO).

These new taxes and fees include:

– $201 billion in new taxes on high-premium health care plans.

– $83 billion in new taxes paid by workers who will receive less employer-sponsored coverage or lose that coverage altogether but will be compensated with higher wages or monetary benefits, which are taxable.

– $23 billion in penalty fees paid by employers who do not comply with the federal insurance mandate.

– $4 billion in penalty fees paid by individuals who don’t have health insurance.

– $16 billion in new income and Medicare payroll tax revenue due to changes in Medicare.

– $180 billion in other tax revenues items calculated by the non-partisan Joint Committee on Taxation (JCT).

According to the JCT, this $180 billion in new taxes would include: A new tax on prescription drug makers that would account for $22.2 billion over 10 years; a new tax on medical device manufacturers that would bring in $38.6 billion; and a new annual tax on insurance companies would net the government $60.4 billion.

Also, a provision that raises the threshold at which medical expenses become tax deductible, from 7.5 percent of income to 10 percent of income, would reportedly yield the government $15.2 billion in new revenue from sick and disabled Americans with high out-of-pocket medical costs.

via CNSNews.com – Finance Committee Health Bill Includes $507 Billion in New Taxes and Fees.

Now let’s take each one of these taxes and see the law of unintended (let’s hope they are unintended) consequences in action.

The first tax is $201 billion on high-premium health care plans. These are the Cadillac plans that many union guys get. You know, the blue collar guys that supposedly the Democrats love to help. So, one must ask why would you tax these plans and what is the effect of the tax. One only needs to look at the cigarette tax to see the purpose. You tax cigarettes because you want to make it more expensive to smoke and thus drive down the number of people that smoke. Similarly, taxing these high-premium plans will increase the over all cost of them and dissuade companies that offer them from continuing to do so. This is the first example of the socialist principle that if we can’t all have a candy bar, none of us will have one. Because we can’t all have Cadillac health care plans, none of us will. Who does this help? This surely doesn’t help the average Joe. Hmmm, wonder if this applies to Congress’s Cadillac plan?

The second tax listed is $83 billion paid by workers who will receive less coverage from employers or lose coverage, but in turn will get paid more because the employer doesn’t have the insurance cost. Here we go again, with liberals looking out for the common man. The plan drives up the cost of insurance, which is likely to cause many companies, especially small businesses, to drop or reduce the health insurance plans for their employees. “No problem,” says the Baucus bill, “We’ll just tax you the worker.” These taxes are what they believe will be higher wages. The government is showing its hand here. It knows that all costs of an employee lowers the employees wages. Keep this in mind next time the government wants to tax the corporation more. Ok, back to this tax. So, when your employer drops your insurance, the government is betting you get a raise. You better hope they are right, because you’ll be mandated to buy your own insurance or pay a fine.

The third tax is $23 billion in fines paid by employers who don’t comply with the almighty state. OK, so now the government is back to raising the cost of your job to the employer. If you are the employer, is this going to increase your likely hood of hiring or decrease? Also, if you are an employer, you are going to compare the cost of the penalty compared to your current insurance costs. If the penalty is less, you are going to go with the penalty. The difference between fines and insurance costs is insurance costs grow ridiculous amounts every year, and fines will be a fixed cost. From a business planning stand point, that is a plus for going with the fines. So now, not only do you not have health insurance, but money that could be going to paying your more is being sent to the government with no benefit to you.

The fourth tax is $4 billion paid by YOU! That’s right, buy health insurance or pay the government. Isn’t freedom great? So, let’s wrap our heads around where we are right now. If you have awesome health insurance through your employer, the government is going to make it more expensive by taxing it. When you employer drops that, they are going to pay a penalty. Then you  have to hope you get a raise of which you’ll pay taxes on. If you deem you can’t afford to buy health insurance yourself, guess what, you will now pay a fine as well. There sure is a lot of spending going on here, with the end result being you still don’t have health insurance. If you are younger, you may still be better off paying these fines though and holding off on health insurance, because you can just wait till you are sick to buy into health insurance. What the heck, the government is preventing insurance companies from turning down anyone for any reason. Hey, they are just looking out for the common man. Thank your lucky stars!

How many more taxes do we have to go through. I’m starting to throw up a little in my mouth. OK, push through it! The next tax is $16 billion in new Medicare payroll tax due to changes in Medicare. I’ve tried to determine what the hell this means, but have been unable to find exactly what’s proposed here. It sounds like they would raise the payroll tax. If it’s raised on the portion you pay, you just got a tax increase. If it’s raised on the employer’s side, companies just got another reason not to hire or to pay you less.

The last part is a whopping $180 billion in other taxes. So what are these taxes? This is where you get some of the most ridiculous parts of the bill that will do the exact opposite of the the bill claims to do. So, $22.2 billion will be a new tax on drug makers, $38.6 billion on medical device manufactures, and $60.4 billion on insurance companies. So, let me guess, these companies are just going to swallow the crap the government just got shoved in their mouth. This is why politicians should stick to speeches and leave the market to the private sector. Companies don’t pay costs. Consumers pay costs. All of these taxes, drive up the cost of drugs, medical devices, and insurance. This is completely contradictory to what politicians say their goal is. Then again, maybe we just have their goals wrong. I’m guessing they know this, and in a few years they’ll come back and say, “See, the free market isn’t working. We now have to step in and take more control to bring these costs down.” If these taxes can’t be passed on to the consumer by some other legislation, the companies will not be able to meet their profit goals. If they cannot reach their profit goals, they will not make the products. Without the product, supply diminishes even more and drives up costs. So, you either have costs driven up by government induced cost burdens on the medical companies or you have costs driven up by a shrinkage in supply. Pick your poison!

The last one is just perfect. The government loves us so much that they want to make it more expensive if you have very high medical bills. If you have very high medical bills, chances are you are disabled or have a child that has a disability. Don’t worry the government is so compassionate, that is going to make you spend 10% of your income instead of 7.5% before you can get a tax deduction on it. Aww, they are so caring.

Hopefully, if you made it through this blog without vomiting, you see the that government is not trying to help people. They are setting up taxes and other penalties so later all the government zombies come back begging the government for more help. Of course, the government will gladly help out again until they get a nationalized health care system.

Why are we Americans moving away from self reliance to the nanny state more and more every year? Do Americans truly believe because something comes from the government, that it is free? Financially, it is much more expensive than the private sector, but the most disturbing cost of government control is the loss of liberty.

America was founded on the belief that the government is a necessary evil, but an evil that must remain small and restrained to prevent it from becoming an unbearable evil. We used to always be skeptical of anything the government said knowing that government always wants more power to control us. Now we just seem to take politicians at their word that they want what’s best for us. Skepticism is something we much pass on generation after generation if we are to last as a nation.

Let’s take the health care reform debate. So many Americans are fed up with the rising costs, that they are begging the government to step in. They believe the government will take over health care, and some how they will be relieved of that burden. Not so fast. With the government controlling your health care, they will control your life on a much larger scale than ever before.

As I said in my previous blog, the economics of health care is suffering from price being hidden from the end consumer. Because of this, demand is constantly driven up with supply not keeping pace. This drives up cost, and the only way to bring cost back under control is to bring down demand. In a normal market this is done naturally through price signals. In a government controlled economy this is done by rationing or by force.

Let’s take rationing first. If the government’s budget for open heart surgeries is X and with the total budget of X only N amount of surgeries can be peformed, how does the government make sure there are not any more open heart surgeries than N? The government will setup strict criteria on who can have open heart surgery. If they find that criteria is allowing more patients than N, they will then make it even more stringent. So, knowing that this is the case, one must ask what criteria will they use? Will you be out of luck if you are too old? What if to keep the number of surgeries at N, you need to have a chance of survival at 75% and your chance is only 60%? What if that is your child’s chance of survival and now yours? As you can see, this is a very scary decision for us to leave in the hands of the cold, lifeless bureaucracy, but what’s worse is driving down demand by government force.

The second way I mentioned the government controlling demand is by force. “Now, come on.”, you say, “You are really going over the top here. Our government would never use force.” While you may see force as guns and tanks, that is not the only force the government uses. Again, as I mentioned in my previous blog on the root causes of rising health care cost, one of the biggest contributors to the demand side of health care is the obesity epidemic in this country. So as the government, how do you control the rate of obesity?

Is it too far fetched for government to outlaw certain foods? How about as mentioned above using criteria to control you? If you want to have access to X, you have to have an accounting of what you eat, similar to doing your taxes. Surely, we can already see the possibility of the government taking your kids away from you if the government deems that you are feeding them too much junk food and they weigh too much.  How about forcing everyone to have a chip injected into them for ease of keeping medical records and driving down cost via efficiency? Even worse, how about forced DNA screening and alteration to minimize the chance of cancer or other diseases? Science progresses so fast, we really have no way of knowing what the government may require of us five or ten years from now as part of the “public good” and “cost containment” when it comes to health care.

If you think the IRS is bad, how about the how about the Medical Records Service (I made this up, I think). Is it possible that the government would require an annual accounting of all medical services delivered to you to insure you are having regular checkups, following the doctors orders, etc?

“No problem.” you say, “I’ll just refuse this “required” screening or this “required” procedure.” Really? Can you refuse to do your taxes? There are already provisions in the bill for not having health care under either a private plan or the public option. If you don’t have health insurance, you will pay a fine and face prison time. If the government isn’t getting the results it wants, surely it will increase the fines and the prison time.

We have gone so far away in this country from what our founders believed, that they would roll over in their graves just at the thought of the IRS, and here we are today contemplating giving the decisions over our health to the government. Here we are begging the government to ration health care and force us into servitude so we can avoid going bankrupt or pay the family doctor out of our pocket for services rendered. We once believed that liberty was worth dying for in this country. Now it seems we don’t even think it’s worth being financially stressed for. Time will tell if we made the right decision, but I beg my fellow Americans to think this decision through with the worse case scenarios. Chance are those scenarios will come to fruition. Liberty is dear, so don’t give it away so cheaply.

Health Care reform has been a politically powerful, hot button issue in election cycle after election cycle. It appears to be coming to a head this year, with Democrats pushing a government run health care plan. Republicans on the other hand seem to be very splintered on what health care reform should look like. It seems many elders in the party believe Republicans should just capitulate to the Democrats because they don’t want to look like they don’t stand for something. They don’t want to look like they are a road block. This is why we have been progressively losing our freedoms and the state has been taking more and more control of our daily lives. Our supposed free market leaders just don’t seem to have the will or the insight to fight for the side of liberty and the free market.

The government constantly goes unchecked on their claims of why a system is experiencing issues. I consent to the fact that our health care industry needs some over haul. Surely, anyone who has had to take care of the health care of themselves and a family can empathize with those who say the system is broken. The question that must be asked is why is it broken? Once you establish why it is broken, you can then truly look at reforms that fix the system, reforms that actually get at the root cause of the ailing system. Why in our country and especially in our government do we always look at symptoms and claim they are the problem? This is a huge issue that will not be fixed by addressing some symptoms. One only need to look at the health of an individual to come up with the perfect analogy of how we are treating the health care “crisis”.

Say a man develops acid reflux. They start off treating it themselves with an antacid. This addresses the symptom. After continually taking over the counter medicine and bumping up their doses, they decide to see their doctor.  They go to the doctor and explain their symptoms. The doctor then explains that the stomach is tilted which results in acid coming out of the stomach into the esophagus. “Wow”, thinks the patient, “I can’t believe I have this condition. Can you prescribe something for me to fix it doc?” “Sure”, the doctor says, and the doctor prescribes an even more potent antacid that the patient will have to take going forward. Now, has the problem been solved? No, the problem has been masked. In the mean time, new issues are beginning, because the acid in the stomach, which is normal, is being suppressed.  So now, food might not digest properly, and the patient now has digestive issues. This is how we treat issues in our public policy.

What the doctor should have said is, “Look this ‘disease’ started because you put on 50 pounds, and the beer belly you now have is causing your stomach to tilt. If you want to fix the problem, your gut is root cause of your problem. Here’s a prescription to a healthier diet and exercise.” Instead, doctors many times treat patients like the government treats our societal problems. Diet and exercise are not as easy as popping a pill the rest of my life, so let’s just ignore the cause of the problem. The same goes for health care. Fixing the problem, because it involves real change, is much harder and scarier for people, so let’s ignore the problem and take the societal pill of government control. As with the patient, this will introduce new and probably worse problems in the future.

“So”, you say, “what are the root causes then big shot?”. Well, one must look at economics to understand how markets work. Everyone constantly talks about the rising cost of health care. What causes prices to rise? Prices are just a signal of where supply and demand are at in any given time period. So, if demand increases and supply doesn’t, prices go up. Contrary if supply increases and demand doesn’t, prices drop. What causes this not to function properly? I should rephrase that, because it does function properly, but it doesn’t function optimally when price is hidden to the end consumer and not taken into account when making spending decisions. So, the first big problem with our health care system is third party payer. If consumers don’t look at price, the demand side of the equation is going to unnecessarily grow. If price is taken into account, consumers may decide they don’t need this service or product at this price. They may also shop for substitutes. Both instances will work to drive demand down and thus lower the cost.

The second root cause of the rising cost of health care is the one who claims they are going to fix it, the government. We already explained why hiding price distorts the market and drives up cost. So what happens when you introduce a market behemoth into the equation. Now, you  not only have price signals being ignored, but you have the vast supply of government money thrown in to exacerbate the market distortion to the Nth degree. Government money always drives up costs. Look at all the money that goes into education and the cost of education. The most ludicrous claim of this whole health care debate is the claim that some how the government can drive cost down. Government control of health care can only lower cost by lowering demand. How would government lower demand? The only way government can lower demand is by refusing products and services to people via rationing.

The last root cause that I’m going to mention is what I explained earlier in my analogy between the person with acid reflux and the way government handles societal problems. Even though in general we live longer now than ever before, that doesn’t mean it doesn’t come with out a societal cost. Part of the problem we have is people live longer now with illnesses and sicknesses. How does this group effect the supply and demand curve. Of course, the more people you have dependent on pills to stay alive or to treat a condition, the more demand is driven up. I can understand that there are people with no control over these circumstances, but in many  more cases there are actions that people can take to fix their health issues themselves. In America, over 60% of the population is overweight, and roughly 25% of the population is consider obese. With excessive weight comes most of the illnesses that our population is dealing with and the popping pills at an every increasing rate. If we want to see a drastic change in the cost of health care and to see the demand side of the supply and demand curve driven down, we have to take action lower the percentage of populace that is overweight.

As you can see, these are real root causes. These don’t have easy to swallow answers that politicians like to use to address symptoms. It’s so much easier to say, “Oh no, you aren’t the problem. You don’t need to make changes. The government needs to take more action and help you.” Really? Do you think the government is going to fix the supply and demand curve to lower price? If anything, government control always lowers supply and increases demand, which, REPEAT IT WITH ME, raises prices. Do you think you are going to have the same freedoms after the government takes over? Not only will you pay for these programs in taxes, but you will pay a much heftier price in lost liberty.

I know, I know. “Well genius, it’s easy to stand on the sidelines and point out problems. How do you think we should fix this ‘crisis’?” As I said before fixes to all root causes are much more difficult to swallow than bandaids on the symptoms. The good thing is these fixes actually fix the problem, where bandaids just hide the problems. In my next blog, I will do my best to put out some ideas on how we can address the rising cost of health care. They will be fixes along the line of solutions to the root causes I laid out here. Until then, when watching the health care debate unfold, ask yourself when you here a so called solution espoused by a policitian, “How does this drive down demand or increase supply to lower price”. If it sounds like it will decrease supply or increase demand, you know the problem is only going to get worse with the prescribed fix.

Since the economic down turn began, I have heard countless politicians, media pundits, and average Joes smear, besmirch, and out right lie about Capitalism. These people are either ignorant or liars. I prefer ignorant, so we can still assume the best of our fellow man.

In order to prevent further spreading of this ignorance, I have decided to outline some of the arguments against Capitalism and the truth that is evident as logic presents itself. Over the next few blogs, I will present the reasoning and logic of Capitalism. First let me apologize to my liberal friends. I will not use my feelings to present my argument. As we all know, feelings can be easily manipulated, which is why you don’t base policy on feelings, well, shouldn’t anyways.

So, let’s start with the most rampant accusation against Capitalism. The socialist mantra goes “Capitalism equals greed”, “Capitalism is based on greed”, or “Capitalism is inherently greedy”. Now, where did this belief come from? Capitalism has been a defined economic system since 1776, when Adam Smith published “The Wealth of Nations”.  In the book, Adam Smith puts forth that in the pursuit of our own self-interest, we build a much more prosperous society.  Even though that isn’t our intent, that is what takes place.

It wasn’t until Karl Marx began the Communist revolution that Capitalism became tarred and feathered. Karl Marx invented the term Capitalism as a smear. Now, how do you convince someone to go against their own self interest, which is what Capitalism is by definition. Well, you need to play on peoples emotions, distort the truth, and play on their morals. More recently, the movie “Wall Street” used a ruthless character named Gordon Gekko that said “Greed is Good”. For some reason, this is what people associate with Capitalism.

Let’s walk through this piece by piece. First, greed has to do with morality. Capitalism has nothing to do with morality. You can be an altruistic capitalist, you can be a greedy capitalist, or you can be a regular capitalist. Notice, that you could just as easily substitute the word person with capitalist. That is because greed is an adjective to describe an object, in this case capitalist. The adjective isn’t the object.

Still a system based on everyone pursuing their self interest sounds really selfish. That is only if you are assuming that everyone’s self interest is the same, and that self interest is detrimental to the well being of others.

First, not all our self interest is the same. If everyone’s self interest was becoming rich and famous, we’d have no stay-at-home moms, school teachers, soldiers, etc. Everyone pursues their best interest by going after their dreams or what makes them happy. If you think money will make you happy, you may pursue wealth. You may also decide to stay at home with your kids and give up financial wealth for the emotional wealth of raising your family. As you can see, self interest is not interchangeable with money, wealth, or greed.

The second part of this selfish stigma has to do with people assuming that Capitalism is a zero-sum game, in which one person gains while the other loses. This couldn’t be further from the truth. This is actually what takes place in other economic systems, such as Socialism or Communism. Now, I know you aren’t going to let me off that easy, so let’s walk through an example.

Under Capitalism, I have a need. Let’s say I have the need for a coffee. This is what I currently want to make me happy (self interest). Now, the local Starbucks, by pursuing their self interest of building wealth, has decided to serve coffee. I walk into the local Starbucks, and we exchange my cash (hopefully not credit for a coffee) for their product, coffee. Now, as you can see, this was not a zero-sum transaction. I got what I wanted, and the Starbucks got what it wanted. We both valued the transaction at the exact same value without any outside force.

Ok, ok, that was a simple, but what about Scrooge. He was greedy. Scrooge was greedy, but by pursuing his greed, he creates jobs, innovates new products or services, and … hold on get this… he serves his fellow man. I know. That doesn’t sound selfish. Let me say (well type) this very loudly.

YOU CANNOT CREATE WEALTH AND BECOME RICH WITHOUT SERVING YOUR FELLOW MAN.

It is by this service that we build a better society. “Hold up”, you say. “What about Bernie Madoff, Enron, and this mortgage crises?”

Well, let me take Enron and Madoff first. Capitalism makes no claims that participants are angels. We all know we are all fallible. In order to protect each other from each other’s fallibility, we pass laws. Many of these laws are passed in order to prevent fraud, which is lying in order to take financial advantage of another. In both the case of Enron and Madoff, you had enterprises ran by criminals. This criminality has nothing to do with Capitalism. You would have criminals under any other economic system, because all systems are made up of men. Capitalism will eventually expose the fraud, because you have to continually produce economic value. Fraud does not produce value. Under competing systems, such as Socialism, these criminals can maintain their fraud much longer because Socialism isn’t concerned with economic value. The fraud could be propped by taking resources from another activity that does produce value.

Now, the mortgage crisis is much more difficult, because it did not involve criminality. “See”, you say. “I told you Capitalism was to blame for the mortgage crisis.”

Well, let me just end this blog, and we’ll dig into that accusation in the next blog. Let’s just say, Capitalism assumes people will make rational decisions, but rationality can be changed when outside forces are introduced.