Thursday, May 08, 2003

Mea Culpa
When Dick Gephardt unveiled his health care plan, I was a bit skeptical (here). But after further review my opinion has changed a bit. Based on his attack of the Gephardt plan, John Edwards showed a fundamental lack of understanding of both public policy and economics. He slammed the plan for doubling the tax exemption corporations receive for insurance premiums as a give-away to the Enrons of the world. Maybe because he is a trial lawyer Edwards does not understand that if you provide assistance only to those corporations that do not now offer health insurance, you would be punishing those employers who now provide insurance for doing the right thing. Plus, you create a major incentive for those companies that now provide insurance to stop doing so, in order to get whatever increased subsidy the government is providing to non-offering employers.
Edwards also fails to realize that the exemption is tied to the insurance premium and is not simply a fixed amount tax credit that a corporation could use for anything. Of course, for those companies that provide insurance already, there is an economic benefit. And they face several choices with their windfall- they could roll the money into salaries and either hire more employees or increase wages for those already employed; they could also pocket the money and increase dividends, if they are a public company; they could also chose to lower the price of the goods or services they produce as their cost of production has gone down; they might decide to use the money for capital investment; or they could do a combination of all the above. Regardless, it is money that would be returning to the economy in one form or another. Obviously wages and capital investment would provide the greatest stimulus.
But to nouveau populists like Edwards, this is all too confusing and it is much easier to play class warfare than to make real public policy.


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