Published March 24, 2010
The Reconciliation Act of 2010 is a disastrous, anti-growth tax hike bill. If this were any other year, it would be by far the year's worst piece of legislation. This bill is once-a-decade bad, but unfortunately overshadowed by the all-time bad affront to personal freedom and fiscal sanity the president signed into law yesterday.
First and worst, the bill hikes the investment tax on capital gains and dividends. That’s the most anti-growth tax hike possible. The Reconciliation Act creates a new 3.8 percent Medicare tax on single filers over $200,000 and married filers over $250,000. The rich? Not quite. This slams business owners and makes it harder for them to raise capital for needed equipment purchases, expansion, and job creation. And there is no inflation indexing, so it will directly hit more and more taxpayers over time.
Investment taxes are especially inappropriate as a “pay-for”; that’s because every capital gains hike has actually lowered revenues due to the economic damage and behavioral changes it caused.
Second, the reconciliation bill makes the business assault of the new health care law much worse. It raises the penalty on employers from $750 per uncovered employee to $2,000.
Third, the bill takes over the private aspects of the student loan industry, putting tens of thousands out of work in the private sector while building up a big new student loan bureaucracy. And this is supposed to happen by next semester, so you can expect lots of headaches for students in the short term as well the long-term costs of bigger government.
Fourth, the "fix" to the Cadillac tax actually makes it worse. Under current law the exemption amount is indexed to CPI plus 1 percent. That’s is already not a high enough inflation bar to keep up with medical costs. The reconciliation bill delays the start of the tax by five years, from 2013 to 2018, but it cuts the inflation adjustment to plain CPI. The lower inflation adjustment means this tax will hit more people faster.
Finally, the Nebraska "fix" (the only one of the infamous and corrupt deals Obama signed into law yesterday that’s actually revisited in the reconciliation) is now a much worse deal for taxpayers. Nebraska no longer gets special treatment, but the new Medicaid funding formula puts federal taxpayers on the hook for 90 percent of the cost of expansion for all states, with special funding increases for 17 states and the District of Columbia. This is welfare reform in reverse; we should be building on the AFDC block-grant model of state control and innovation that worked so well in the 1990s, not federalizing Medicaid.
The bottom line: the bill does not clean up or complete the new health care law. It should be judged on its own extremely dubious merits and the Senate should vote no.
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