The Government Should Never, Ever Ever Make it Better to not Work Than to Work

I’ll give you (another) economics lesson:

The University I went to for economics had a typical, conservative economics program mostly featuring laissez faire ideology. Although such a doctrine turns out to be no where near as progressive as what is needed, it was (at least back then) not completely bereft of all progressive ideas. In other words, there were a few progressive components to what was overall a not very progressive doctrine.

There was one particular progressive component that was drilled into all the students' brains, since it kept coming up within and among various courses, over and over and over again. This topic set the record for most mentions during the economics degree program.

The topic was that regressive taxation is a very, very bad idea.

I think the professors thought of their coverage of this topic as a necessary speed check for their overall free market doctrine. They didn’t want their students getting carried away with conservatism and creating a monster of a tax policy that would cut down on economic growth.

But as Thom Hartmann among others have long since realized, a monster of a tax policy has indeed developed in the US, despite the best intentions of my conservative professors. Sure enough, the already regressive tax system put into effect in the last 30 years has already heavily damaged the economy.

It appears that the rule is simple: you either avoid regressive taxation or you have a low growth, bad economy; it’s your choice.

The opposite of regressive taxation, which is of course progressive taxation, used to be at least partially accepted by much of the US right wing. But due to the extreme right taking over for the right in general (or for the traditional right, if you prefer) that was thrown out the window, and several historical tax laws have already brought regressive taxation to the US since the extreme right wing era in the US began in 1980.

Everyone knows that over the past 30 years, there have been several laws massively reducing the taxes on the rich. What you probably don’t know is that it is about to get worse.

We are now scheduled to get a new huge tax hike on the poor, cleverly but cynically disguised as "the health care mandate". Since "subsidies" for low income people to buy private health insurance are most definitely going to be inadequate for at least the near poor, the “requirement” to buy private health insurance, or pay (you guessed it) a tax fine, will be nothing more and nothing less than a hugely and grindingly regressive tax targeted mostly but not exclusively on the near poor.

Ok, so why exactly did even the conservative economics program at University warn against regressive taxation? Is it really that bad?

Well, first of all, as you might suspect, the fact that regressive taxation is inherently unfair was NOT the primary reason why it was taught that regressive taxation needs to be avoided. But unfairness was usually mentioned, interestingly enough.

The biggest reason you never ever do regressive taxation, which was so painstakingly repeated and explained in detail that my brain more or less shut down from boredom each time this was explained, was that regressive taxation causes low income people to rationally decide not to work, or to hide income if they do work.

If you have no income at all, then presumably you don't owe even a regressive tax. Indeed, under the disastrous laws scheduled to be passed right now, those with extremely low incomes, near zero, may get waivers and/or almost automatic enrollment into Medicaid. Specifically, in 2013 (when this may go into effect) a single person with less than roughly $15,000 in income, and a family of three (one child) with less than roughly $20,000 in income, will apparently be left, in effect, untaxed (not "required" to buy private insurance).

Whereas, if your income is between about $15,000 and $30,000 for a single, and if it is between about $20,000 and $40,000 for a family of three, and so on and so forth, you will have a new "health insurance tax" of whatever your health insurance premiums, co-pays, deductibles, and exclusions add up to, anything from $4,000 per year to $50,000 per year, depending on dozens of variables. (The maximum may possibly be quasi regulated, but don't look for anything with a guarantee and without a loophole.)

Incidentally, the total unpredictability of the actual total tax on individuals from year to year is another factor making the new law nothing short of madness.

Now think about this logically for a moment. If you have the choice between working your rear end off for a low but non-poverty income, and being subject to the new $4,000-$50,000 per year tax less any (inadequate) subsidies and regulations, or not working at all (or appearing to not work at all at least) and having Medicaid free of charge, which are you going to really want?

As long as you are surviving while not working, doing the food stamps and so forth, you will tend to prefer the life of leisure and Medicaid over the life of working your rear end off but running out of money to pay the taxes and the health insurance all the time.

Incentives to start or continue a small business will be trashed as well. Incentives to hide income will be greatly increased.

You get it? The government should never, ever, ever, make it better to not work than to work. But this is exactly what the current US government is proposing to do: to make it much better for millions of people to have a near zero income (not counting direct assistance) than a low income.

So I can guarantee you that the health insurance reform will be worse than however bad you think it will be. Among many other faults, this law will be an unprecedented and willful violation of BOTH long accepted progressive and long accepted conservative economic doctrine.

The above was in response to this article by Wendell Potter, the former health insurance executive turned whistle blower.