Topic: Health Care
Is the US Medical Crisis a Tax Crisis Instead? The costs of the medical industry are related to supply and demand. Why are we not doing what we can to increase supply? Because that would require us to fix a broken tax code.by EJ Moosa
(libertarian)
Tuesday, October 27, 2009
I would like to suggest a different reason for the medical crisis that is being legislated in our capital. I would like to suggest it is really a tax crisis instead.
Why? Because physicians reach a threshold of taxation so quickly that their incentive to work any additional hours becomes severely diminished. Diminished hours means diminished supply. So why are we not doing all we can to increase supply if we have a shortage of services?
Like any hardworking individual, doctors know when they reach a point of diminishing return on what they are selling. And they are selling something-knowledge. How many days do you think a doctor has to work in order to hit the maximum tax brackets, and thus suffer the maximum amount of deterrence to work harder? If by April 15th of every year you knew that most of your earnings were going to taxes, how motivated would you be?
I have heard lots of stories about how expensive treatments are for one lifesaving procedure or another. Yet I never hear someone say that the $100,000 spent to save their lives really was not worth it. Yet physicians are not competing with one another for that business are they? They are not extending their office hours, open Saturdays and Sundays to reduce their backlog of patients, or any of the other ways that they could see more patients and effectively, earn more income. Why do you think that is?
If just 50% of physicians had an incentive to treat 10% more in terms of patients, would we really need to have government take over health care in our country?
Our tax structure is meant to punish those that earn the most in our society. If we are punishing them via the tax code, why would they turn around and work harder? Why would they try to increase their incomes by seeing more patients and then finding that for every dollar they earn, they are paying 65 cents or more in taxes. After you reach the 50% tax bracket, you are working more for the government than you are for yourself anyway. How many rational people would knowingly work harder and harder for less? It's just not worth it.
And today, many of us have been pushed into punitive tax brackets without earning incredible sums of money, due to the broken tax code. How many of us have been struck by reduced deductions, or the aleternative minimum tax? These are punitive by design. The government knows it and have refused to eliminate them.
So, imagine the federal, state and local taxes a successful doctor must pay once he has made, for arguments sake, $400,000 in income for the year. He could work 10% harder to earn $40,000 more, but he will only pocket $10,000 or so after the additional taxes, reduction in value of his itemized deductions, and possibly the alternative minimum tax. Where is the incentive? There is none.
As I have suggested in the past, if the politicians were serious about increasing the supply of medical services in the United States, they would immediately eliminate all federal income taxes in the medical field. Give those working in the business today the incentive to work more. What they are doing today will give them greater incentive to work less. It will not be worth the pay or the paperwork.
Eliminating the Federal Income tax on the medical profession would be good for their pocketbooks, and for ours. They only losers would be the politicians who would not have the money pass through their hands, and who do not get to control our lives.
This is a tax crisis at heart. The reason this "crisis" hits us the way it does while there are so many other professions that also suffer from high punitive taxes is that medical care is a personal need. High paid movie stars, sports players, investment bankers, and others are optional in the majority of our lives. Medical care is not. And this crisis is being exploited for too many reasons to list here.
Fix the punitive tax code in this nation, and we would have all the medical care we needed. That is the way capitalism works. Unfortunately there are too many in Washington creating a tax code with no understanding or belief in a capitalist America.
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apparently, you say doctors do not work long or hard enough because they face taxes and if they did work harder, we would have all the health care we needed at the right price.
yet, you mention they make large amounts of income, so large that their taxes are very high.
wouldn't it follow that if we needed more doctor hours and they are awarded with incomes so large that they get taxed highly [as opposed to a job in which one is rewarded little and taxed little] that there would be tons of potential doctor workers just waiting to take up those hours and earn that high taxable income?
isn't that referred to as competition? and isn't one extremely effective way to limit competition is to institute barriers to entry?
you have proven that the problem is no competition in the doctor trade. the income tax is an issue, but it is an issue that confronts every industry and every industry doesn't claim one fifth of the gross domestic product or require insurance payments of one thousand a month or have the average professional as you say, earn 400 thou a year. if as you say, more doctor hours would solve the problem, then certainly more doctors would do the same. removing the income tax, while beneficial in lots of ways, does little to remove the barriers to entry and other mechanisms that insure professional monopoly.
You are drawing conclusions I did not make. I did not say making large sums of money meant that they were working to their max. I said that the current tax situation discourages additional production by doctors because their pay has reached a certain threshold. Discouraging additional income production by doctors is precisely the wrong response to a shortage of medical services.
There are not tons of doctors waiting to earn the income the doctors today are NOT earning. Why? In order to get more doctors waiting in the wings, you would have to both remove the barriers to entry in the field (the high expense and effort necessary to become a doctor in the first place), and the barriers to potential income, which is the dysfunctional tax rates. A doctor making $500,000 a year and a pitcher for the Yankees making $500,000 a start are in the same tax bracket. And I am NOT making the argument to tax the pitcher at a higher rate.
Since the barriers to entry in this field cannot be easily removed (we are talking about education, medical school, and the other requirements to becoming a doctor), then the barriers to profit should be removed.
Who wants to invest the money needed today to successfully become a doctor, only to have their potential income limited by the Federal government in the future? If you think we have a shortage of doctors today, wait until the government "fixes" health care.
Everyone I know thinks that their taxes are too high. Especially those who are successful and pay a higher %, but I don't think eliminating the income tax on those in the medical field would fix our medical system crisis.
I have several friends who are doctors and they are constantly complaining about the things that get in the way of their practicing medicine - insurance company paperwork and government regulations. They continually tell me that they spend more time doing paperwork that treating patients. Removing the income tax would not change this.
Open up the medical field up to true competition and cut much of the bs paperwork and things would change.
1. Allow everyone to buy insurance from any company in any state
2. Risk based premiums - just like auto or health insurance
3. Publish prices for services - let me pick the hospital or doctor I want to see see and let me know what he charges. Also what the insurance company will pay.
Let's force the government out of healthcare, make insurance companies compete for patients, doctors and hospitals. Then the doctors would have more time to practice medicine and our broken tax system could be addressed as a separate issue for us all.
Where does the income that doctors pay in income tax come from? You, the consumer.
What if that Doctor did not have to take that revenue he pays in taxes and send to the Federal government, what would he do with it?
Doctors could hire staff to handle insurance and paperwork issues. Doctors could lower their fees. The cost of their taxes are embedded in the prices they charge to you.
Regarding your suggestions:
Combine 1 and 2 and I cannot disagree. But right now the system is such that those at high risk do not even come close to paying for that risk coverage while healthy people are being taken to the cleaners(which is why they are forgoing insurance).
Proposal 3: Patients today do not care what doctors charge IF they have insurance and it is covering most of the expenses. Would you honestly switch doctors if one down the street offers the same services for 10% less, if the insurance company is absorbing the cost difference?
We need variable co-pays. And that variable needs to be based on what the cost of an average visit for the services you receive versus what your doctor has charged. If you are below the average, no co-pay. If you are above the average, you pay out of pocket the difference between the average and what your doctor has charged. Then you the consumer will be encouraged to find lower priced medical services.
Ask your doctors if they would be willing to practice more medicine and hire folks to handle the paperwork IF they kept more of what they earned. Ask them if they are discouraged from working more because of the high, punitive tax rates. I would like to know their response.
it simply doesn't make sense that removing tax in a monopoly market would lower consumer costs. that is a free market assumption applied to a fixed market. removing tax in a monopoly wage market would simply raise wage. besides, you have completely overlooked the fact that removing tax and raising existing wages will convince a certain percentage of docs to work less, since they would pull in the same aggregate sum. everyone has different preferences.
you also 'assume' that removing tax is easier that removing barriers to entry. certainly, it will be easier to convince the docs and the AMA of this, but that may be as far as you would get.
if you look at extraordinary income, you will almost always find government intervention. your examples of docs and yankee pitchers is a great one. throw in the financial sector and you find the federal reserve and bailouts. the gov. creates barriers and builds stadiums and gives "tax breaks" and distributes capital. take em away and the monopoly goes away with it.
i am with you on the income tax, but not for the reasons you mention. it is wrong for everyone, but removal will do little to fix the health care system unless eliminating it would also eliminate all the state corporate alliances in that industry.
If reducing taxes could encourage people to work less, then does raising taxes encourage them to work harder?
If some doctors choose not to increase their incomes, they will find that they are competing against other doctors that wish to and have lowered the fees for what they charge. That is at the heart of competition and capitalism. I trust capitalism to identify the need and fill it. The ability to profit is the key to capitalism.
Did people work less hard before we had a federal income tax? Did we decide to work harder after it was implemented? I think not.
You either believe in capitalism or you do not. managed capitalism is not capitalism at all. It is the recipe for disaster.
If you have not read "The Road to Serfdom" by F.A. Hayek, I highly recommend it. None of the issues we face today are new. None of the solutions being proposed are new. It's just a new generation that think they have had an "eureka" moment and can get something for nothing if ONLY they exert a bit more control.
Yet the strength of capitalism lies in you and I, the individual. For if you put the power of choice in our hands, we will be able to exact the biggest bang for the buck, or in this case, the best medical care for the dollar. Leave all the middlemen in place to take their cut while not being 100% aligned with our individual need, and we are paying for what we do not get.
"road to serfdom" is a good book but he didn't mention "italy" in his analogy of socialism and fascism? fascism in italy arose in opposition to both the aristocracy and socialism, not because of it.
did people work less before the income tax?
no, they worked harder, mainly because they were receiving less of the return from the product. one hundred years of a labor movement had a lot to do with the portion labor now gets. if you go back to before the industrial "revolution", they worked less.
do they work harder now because of the income tax?
they work harder than they would need to if the income tax didn't exist now. the income tax takes a big portion of their product and diverts it to other people and industry and war, so yes they have to work harder than they would without the tax. unless they are on the receiving end of the tax, which much of the medical industry is. the income tax was not even possible in the nineteenth century, unless you wanted to tax solely the elites and that wouldn't go over too well, would it? every dollar someone earns without working is a dollar someone doesn't earn when working.
managed capitalism is not capitalism? when did we have this "free market"? when the government gave away the land base, built the railroads and opened the shipping lanes and created the "navy"? when the interstate freeway system was built? when hoover dam was built? when the grid was built? the bailout? let me know when the bus stops at the free market, cause i want to get off.
the ability to make a profit is the key to capitalism? the ability to produce and redirect the 'surplus' to future economic activities is the basis for capitalism. it is not called "profitism". surplus does not automatically equate to profit, unless you apply force.
most economists see profit falling to zero in a true free market. look up the definition of "profit" and you will not find a definitve answer. if you remove labor and interest and rent, it doesn't exist. there is no place you can point to "profit" that doesn't fall in those three categories and not point to government force, in fact you will also find state force within those categories.
i agree with you on the control, but you are missing the half of it.
People work hard because it is in their own best interest. If they choose not to, it is because they do not feel it is in their best interest relative to what ever else they have chosen.
When did we have these free markets? Never have we had truly free markets. But that does not mean that we cannot pursue the principles of a free market. Nor does that mean that we cannot explain some of the misguided outcomes we see relative to government intervention in those markets.
Capitalism without profit? Honestly, have you ever heard of any capitalist project that had as a goal to break even?
Most economists do not believe profit will fall to zero in a true free market. Sure, it's a catchy idea today in some circles but unrealistic to say the least. When the profit approaches zero, competitors will leave that industry or sector, then profits will rise again. Profits may be coming from an indirect source rather than a direct source, but if there are no profits, the business will not be a business for very long. I'd like to see that source citation.
A definition for profit?
Sales price - costs= Profit (loss)
So if I produce a product, and sell it to you for a profit, explain the use of force in that equation.
the mba definition, profit equals selling price minus cost, tells us nothing.
did you actually "produce" the product? then whatever I compensate you is labor. If you charge me more than your labor, wouldn't competition bring someone who will accept their labor for compensation?
did you get your product off your land? then my compensation is for your rent. if you charge me more than your rent, then wouldn't someone be satisfied with the market rent for the product?
did you use your own capital to produce the product? then my compensation is for your capital [interest]. if you try to charge more than interest, wouldn't someone be satisfied with the market rate of interest?
Okay, how else can you make a profit that will sustain in a free market? in other words, eliminating market breakthroughs [new ideas, etc.] that will temporarily reward high profit, how else can you profit without the force of the state to remove what is subject to natural competition?
where is profit in that bottom line that isn't some part of labor, capital and rent OR government force?
If everyone's labor was worth the same value, you might have a point, but it isn't. I may do something faster, better, or with additional features. Paying for labor is also paying for knowledge.
If everyone's property had the same attributes you might have a point. But it isn't.
If everyone's perception of risk was equal, then compensation(or interest) might be the same, but it isn't. It's why some people are willing to buy government bonds at 2 1/2 % interest, and others laugh at that rate. Also, capital will try to find the best return. And not all investment opportunities offer a return perceived to be best relative to the risk.
Profit is not a zero sum game. Microsoft can make a profit called Office that I can use to become more efficient and also make a profit.
There are two sides to every transaction. And each party gives up what they choose in exchange to the other party because what they get is more valuable than what they had. That value is determined on an individual basis, and does not require government force at all.
what labor, capital or land is worth is irrelevant to profit.
someone could certainly earn more money per hour on a product, but they can't earn more total amount on the same product in a competitive market. their labor is worth more, they haven't profited.
land in a free market can have greater value, but its cost would reflect that. that is what is known as rent and is part of the cost of the product. better land equals higher rent. better land does not necessarily mean profit unless there is land monopoly, which of course, there is.
the same goes for capital. greater risk equals greater reward, but that does not determine profit. greater risk is just that. and the return for greater risk is determined by the market [if it is free]. there is no profit above and beyond interest unless there is capital monopoly. heck, we have that also.
microsoft is a great example. an innovation can earn profit, but only temporarily, as competitors will drive down the profit by producing the same new product. unless, you outlaw that. unless you tell third parties they cannot make the same product with their own labor and materials. that's patent monopoly, a great source of profit.
when you observe continually high profits in an industry, by the same actors, year after year, there is monopoly. hayek noticed it fifty years ago.
mises himself stated that profit goes away as soon as "the maladjustment is entirely removed".
the force is on the production side for the most part. add tariffs and reference tucker's four points.
Sorry, but I disagree completely. Labor, land, and captial are all related to profit. And the same piece of land can have very different values dependent upon how it will be utilized.
There are many reasons for monopolies including some you have listed. Microsoft hired and retained highly educated and motivated individuals, who in return for their brain power received compensation of which many of us would only dream about. They were not forced to workfor Microsoft. Had Gates not started the company, many may have never received such compensation.
Microsoft is not a monopoly. Yet they have high profit margins. No one is forced to buy their products.
And monopolies are not necessarily bad. And neither are profits.
A profitless world would be a pitiful world. And it seems that you are saying profits only come at the expense of another. That is simply untrue. Two or more parties can profit from the SAME transaction. How could that be negative?
i will try once more, these are not some crazy ideas, they are basic economic principles.
in a free market, one can receive rent from land, interest from capital and wage from labor. in a free market, all three are determined by the market and every aspect is competitive. there is no "profit" in receiving one or all three, in that if you earn more than someone else, you will soon be replaced by someone else who will put up with the market rate. for instance, if someone charges more than market rent for his land, then someone with 'comparable' land will offer his land for market price. same with labor and capital. if that doesn't happen, then there is monopoly and there is no market price, there is monopoly price.
profit can be earned by producing in a way that is more efficient or more anything than your competitors, but unless there is intervention by force to stop your competitors from producing in the same way, profit is shortlived. humans learn quick. however long it takes others to want to earn that same profit, which of course drives the profit down eventually to cost.
if that isn't happening, there is government sanctioned monopoly. see if microsoft has any patents? check out the history of the computer and you will see big government not bill gates.
it is fine to 'call' rent, interest or labor profit, but all three have to be subject to the free market or you have monopoly. simply means, you can't get 'more' rent or 'more' interest or 'more' wage than the next chump for the same product for any extended period or we all have to admit to a free market that doesn't work. it can't go both ways.
intellectual property rights, as they are recognized today, are a violation of other's property rights backed, of course, by the force of the state. patent monopolies are called by law just that, patent monopolies.
everyone, on a true free market, has the right to
1. keep their idea to their self.
2. sell their idea outright
3. contract their idea or idea product with "no right of copy", to all successive owners and if they wish all sucessive future owners. this would instill the true market cost to copyright, not a socialized profit.
no one has the inherent right in a free market to "force" others to not act with their own property, which is exactly what monopoly patents do. once you have purchased a product and it is now your property, you have every right to "copy" that product, using your own property, unless you have consentually agreed to "not copy" that product.
are we not allowed to plant a seed from an apple we have purchased? does the future fruit belong to the original grower?
this would bring the true market cost to products [those that can be copied would be worth more, those that can't less], and eliminate state intervention in the market, something you seem to actually really like!
Yes, i believe in property rights, much more strongly than those who believe that the coercive action of the state [with the resultant restriction of real property rights] through patent and copyright enforcement is okay. [of course, patent protection is always rationalized as better for the "common good", a main rallying cry for socialism or communism]
protect your ideas and new products, if you wish, through contracts, not with force of the state. someone breaks your contract, take it to court, it is that simple.
every product, no matter what it is, should bear the cost of the marketplace. when that doesn't happen, you have socialism, someone else covers the cost. It is socialism whether bill gates is on the receiving end or the bum that sleeps under the bridge. the free market has no favorites. sorry, it's not a religion. you don't either "believe" in it or not "believe" in it, it either is or it isn't.
i have spent enough time clogging up your comment section. i haven't received one concrete answer to any of these basic fundamental questions that go way back to folks far smarter than me [i hope i haven't violated any copy laws!;]. you are basing your views on "beliefs" rather than sound principles and that certainly is your right.
One problem with you argument is that more money for them will equate to more productivity in the long run. After a certain level of income, some people are more interested in *spending* it than just getting more.
They become "Cash rich and time poor". Afterall what use is all the money in the world, if you have no time to spend it. There i an area of social science called related to "motivation", one interesting theory is "ERG" theory.
A simple example, boost they pay of your secretary, give her a nice desk and some plant pots....now watch the productivity soar right?
http://www.netmba.com/mgmt/ob/motivation/erg/
Productivity of doctors may increase some, but maybe by not as much as would be hoped.
One of the many issues we face today is the use of an individual example versus the overall group experience. In this instance you are using an individual secretary to disavow the impact on average of an entire group, in this instance doctors.
If the secretary's performance does not improve, you boot her. She is not the only available secretary in town. And there will be plenty of other secretarial staff somewhere that would love to compete for that position.
Also, more money for doctors does not necessarily mean more money per doctor. It also means more doctors.
Look at Major League Sports...many top players tank once they get the big bucks, which supports your example. But because of that higher and higher salary bar, there are many more players of great talent willing to play the sport for the chance to get to that level of salary. The are working hard for that opportunity.
Finally, the question needs to be asked: "Who should have the income? The doctor that earns it or the government that takes it?"
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