Friday, June 26, 2009

Today’s Company Store

In my previous post I discussed the ‘truck system’ that offered workers employment, food, and housing, but that kept them bound to a poorer way of life. An infamous element of this system was the company store. I said that a similar feature is at work today and is at the center of one of today’s hottest issues. Let’s take another history trip.

During WWII the U.S. economy was turned into a command economy, where the government took control of as many resources as possible to focus on defeating the Axis. This functioned well and accomplished the goal because most Americans were fully on board with the goal. The myriad war policies included wage controls.

While wage controls seek to hold down costs, they cannot repeal the laws of supply and demand. In order to attract workers, some employers began offering health insurance. It took a while for the federal government to figure out what was going on. When it did, the IRS sought to tax this benefit, as it is obviously just a substitution for actual wages. But the practice had become so widespread that there was a huge outcry that resulted in Congress exempting employer provided health insurance from taxation.

In the space of a few years, government planners, employers, employees, and politicians had participated in creating a ‘company store’ for health insurance, even while the evils of the old company store were dissipating throughout the U.S. This system amounts to a subsidy that ‘costs’ taxpayers somewhere north of $100 billion annually.

During the recent presidential campaign, Sen. John McCain (R-AZ) suggested taxing this benefit. He was strongly taken to task by Sen. Barack Obama (D-IL), who said that this should not be an option. Of course, once he was President, Obama signaled as early as last March that it is an option. (No, he’s not the first politician to do an about face once in office. They all do it to one degree or another.)

Democrats that want to push through a heavily government centric health insurance system need a lot of money to pay for it. Although they know that taxing employer provided health insurance is highly unpopular, there is simply no other bucket from which they can quickly pull the amount of money that this tax would provide. Besides, taxing this benefit as income while offering a tax free government supplied option would rapidly entice employees (or more accurately, employers) into the government system and away from employer chosen private plans.

Republicans are fighting this tooth and nail. A number of Democrats are also skittish. Not to mention the fact that the health insurance companies that owe much of their livelihood to the entrenched subsidy are lobbying up a storm on this front. This tax might make it through the House, but I’d be surprised to see it survive the Senate (this year, at lest).

While the Republicans are fighting to keep the popular status quo and Democrats are simply looking for a way to finance their plan to further their championed cause of socialized medicine, few on either side seem to be stopping to ask whether the employer provided health insurance subsidy is a good idea in and of itself.

Next time: The Cost of Shackles

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