Health or wealth security? Public policy priorities in the new millennium.

Author:Zalewski, David A.
 
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In what would be one of the boldest proposals for reshaping the role of the federal government since the New Deal, President George W. Bush planned to unveil the administration's plan for an "ownership society" in his 2004 State of the Union address. The objective of this program is to shift the responsibility for providing economic security from the government to individuals through changes in federal budget policy. Although the president had not yet articulated a unified vision of this transformation by late 2003, the three large tax cuts on savings and capital passed during his term are important parts of this strategy since they will encourage savings. The importance of tax relief for building a personal safety net comes from the administration's claim that one of the six goals of the president's economic program--"To Enable Families and Businesses to Plan for the Future with Confidence"--will not be accomplished unless Congress makes permanent several of the tax cuts, including the estate tax, that are scheduled to expire during the next decade. (1)

This article argues that the "ownership society" will be one in which the current "owners"--that is, the wealthy--will become more confident about their economic future while it accelerates a trend in which others will be inadequately prepared to bear risks previously assumed by the federal government. This is especially true for health care, which is the focus of this study. By instituting tax cuts that disproportionately benefit the well-to-do, the president will help solidify their class position while limiting the human potential and social mobility of the disadvantaged for whom public funds could provide health insurance or help pay catastrophic medical expenses. Moreover, lack of health care may perversely limit future rates of economic growth--an important objective of the administration's policies. This would make it difficult for many families to accumulate enough wealth to weather some of life's more costly contingencies.

Why have voters allowed politicians to favor the rich by diverting public funds from programs that meet basic human needs? The paper concludes by reporting the findings from recent research that found that many people do not understand the distributional impact of complex legislation. Although this suggests that progressive leaders must communicate the potential consequences of policy changes more effectively, it may be necessary for people to experience the results of the president's political experiment to generate support for counter reforms.

The Bush Tax Cuts and Economic Progress

On May 28, 2003, President George W. Bush signed into law the Jobs and Growth Tax Relief Reconciliation Act of 2003, which provided $330 billion in tax reductions through 2013. The 38.6 percent top tax rate on dividends and 20 percent maximum rate on capital gains both were lowered to 15 percent, and the 3.6 percentage point decline in the highest marginal rate on ordinary income was accelerated. Moreover, the small business equipment write-off limit was increased from $25,000 to $100,000 and companies were allowed to depreciate 50 percent of all new investment in 2003. This legislation followed the $1.3 trillion Economic Growth and Tax Relief Reconciliation Act of 2001 and a smaller tax package in 2002. The most controversial part of the first bill, which was the most extensive tax cut initiative in twenty years, was the gradual reduction of the federal estate tax, which previously reached a top rate of 55 percent after a $675,000 exclusion of an estate's value. According to the provisions of the act, the exemption will rise to $3.5 million and the maximum rate will fall to 45 percent by 2009. In an interesting twist, however, the tax will be repealed in 2010 but then reinstated in 2011 at the top income tax rate.

Viewed as a whole, President Bush's tax reform initiatives have accomplished much of the conservative tax agenda promoted by activists such as Grover Norquist and Steve Forbes. Norquist recently described these goals as abolishing the estate tax and the capital gains tax, creating personal investment accounts in which all returns are tax free, permitting immediate write-offs of all business investment, and eliminating the alternative minimum tax ("Step-by-Step Tax Reform," The Washington Post, June 9, 2003, A21). What kinds of benefits do tax cut advocates anticipate? Although they provided a short-term Keynesian stimulus, the Bush tax cuts disproportionately favor the wealthy. Citizens for Tax Justice estimated that the tax liability of the richest 1 percent will decline by 25 percent by 2010 versus a 10 percent reduction for the bottom 95 percent of wage earners if all temporary cuts are made permanent (2003). However, Hoover Institution fellows Gary S. Becker, Edward P. Lazear, and Kevin M. Murphy have argued that the most important benefit is a higher rate of long-run economic growth ("The Double Benefit of Tax Cuts," The Wall Street Journal, October 7, 2003, A20). They predict that this will result from government spending reductions to match lower tax revenues and because lower marginal tax rates are...

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