Let's hope we can afford it

News. President Obama’s historic victory on health reform carries enormous consequences for American business, the economy, social policy and politics.

The legislation would substantially expand the role and size of government, adding an estimated 16-million beneficiaries to the costly Medicaid program.

The burdens of financing the new health system will fall, by design, on a narrow swath of taxpayers: high income Americans, in the form of higher Medicare taxes; health insurers offering high cost plans; medical device manufacturers; employers who decline to provide health coverage to their workers.

One major provision designed to control costs – the so-called “Cadillac tax” on high-value insurance plans – was delayed in its implementation until 2018 because of political resistance; that largely came from labor unions which have negotiated high-value plans in collective bargaining.

New taxes would be imposed on interest, dividends, capital gains and other investment income for wealthy individuals. Increase the Medicare payroll tax. The president wants to increase the top tax rate on capital gains and dividends from 15 percent to 20 percent. If Congress goes along, the new top rate would be 23.8 percent in 2013, when the health care taxes kick in.

My point. There is no free lunch. Let's hope we can afford it. Large entitlement programs have never cut the deficit (see Medicare and Social Security).

If we cannot afford it, new taxes will have to be raised. What will be the impact on an already weak economy (see previous post)?

You can rest assured that the markets always win.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 by Timer Digest

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