Friday, August 15, 2008

Stepping Away rom Bipartisanship?

Greg Mankiw has a post up today about yesterday's Goolsbee-Furman WSJ op-ed on Obama's tax plan. This post is about Mankiw's second point (his first point concerns dividend tax rates). Mankiw writes

the Furman-Goolsbee piece seems to take a surprising step away from bipartisanship. They take a swipe at Senator McCain's proposal to replace the tax exclusion for employer-provided health insurance with a more flexible health insurance credit. When President Bush suggested a similar idea last year, Furman and coauthors called it "a step in the right direction," and many other commentators agreed. It is too bad that Team Obama is now dissing the proposal.
I'll leave aside the question of whether it would matter if Furman and Goolsbee really are somehow moving away from bipartisanship. Rather, I want to quote from the abstract to the previous Furman piece to which Mankiw refers. Here's the 2nd paragraph, which is the first part of their piece that could be considered in some way an evaluation
The innovative plan is a major step toward improving the efficiency of the market for health insurance. By severing the link between work and insurance, it would offer everyone the same tax incentives to obtain insurance coverage and limit spending on health care. Whether it would succeed in meeting its objectives in a fair way is less clear.

The new tax incentives will help some individuals to gain coverage. But they could also lead employers, particularly those in small firms, to discontinue health plans for their workers, some of whom would end up without insurance. Furthermore, by relying on tax deductions, the plan would continue to provide the largest benefits to high-income taxpayers and offer little or no financial incentive for low-income people who most need help paying for insurance. The plan would encourage states to shift existing funds to subsidize insurance for people with low incomes and chronic health conditions, but those funds could well be too small to be effective.
And here's the full context of the part from which Mankiw quotes:
Despite its limitations, the President's plan marks an encouraging step in the right direction. With appropriate modifications, it could expand health insurance coverage and improve market efficiency.
In sum, yes, Furman et al did write the Bush plan was "a step in the right direction". They also:
  • Questioned whether the plan would "succeed in meeting its objectives in a fair way"
  • Wrote that the plan had "limitations"
  • Wrote that it would achieve the dual goals of greater coverage and more efficiency "with appropriate modifications"
Here's what Furman and Goolsbee wrote in the WSJ:
Sen. McCain's plan does include one new proposal that would result in higher taxes on the middle class. As even Sen. McCain's advisers have acknowledged, his health-care plan would impose a $3.6 trillion tax increase over 10 years on workers. Sen. McCain's plan will count the health care you get from your employer as if it were taxable cash income. Even after accounting for Sen. McCain's proposed health-care tax credits, this plan would eventually leave tens of millions of middle-class families paying higher taxes. In addition, as the Congressional Budget Office has shown, this kind of plan would push people into higher tax brackets and increase the taxes people pay as their compensation rises, raising marginal tax rates by even more than if we let the entire Bush tax-cut plan expire tomorrow.
It's true that the part of the Furman et al piece I quoted doesn't raise the issue of taxes per se (though it does discuss progressivity elsewhere in the abstract). But the original piece is hardly a tribute to the Bush plan. In sum there really isn't any conflict between the WSJ and earlier pieces, in either tone or substance. Even granting that bipartisanship is intrinsically valuable, Mankiw seems to be "dissing", as he might write, a strawman.

1 comment:

Ken Houghton said...

"In sum there really isn't any conflict between the WSJ and earlier pieces, in either tone or substance. Even granting that bipartisanship is intrinsically valuable, Mankiw seems to be 'dissing,' as he might write, a strawman."

Ma nishta...?