Monday, March 22, 2010

Healthcare reform and entrepreneurship

For about 2 hours today, I was scheduled to appear on the local TV news to provide a commentary on the impact of Sunday’s healthcare bill upon local entrepreneurs. So while waiting for my 1 p.m. (later 2 p.m.) interview, I was doing some background reading to be up to speed.

Alas, the interview was cancelled because the reporter had his story changed, when shortly after noon Google announced that Chinese search users would get uncensored results from So my mom will have to wait a while longer to see a video of her firstborn being interviewed as an “expert” on TV.

Preparing for the planned interview, I didn’t see a single credible source on the impact of the Senate bill (let alone the planned changes) on small business — nothing equivalent to the November article in Time magazine about the House bill. The most complete factual source I saw was the Tax Foundation timeline published Sunday, but that was bullet points without links to a description of the details.

Obviously, for business, the economy, and the broader society, this massive change brings tremendous uncertainty, particularly during the period between the bill’s enactment and when the major spending is scheduled to begin in 2019. There will be two presidential and five Congressional elections between now and then — not to mention the low probability that either party will actually enact Medicare cuts that are budgeted as the major cost savings.

For California, there is also the uncertainty as to whether the Federal bill will increase or decrease the momentum behind the proposed single-payer monopoly for funding healthcare that has already passed the state Senate. Presume Arnie (and Meg) would veto such a bill, while Jerry would eagerly sign it.

There are also unresolved questions as to how the various mandates will work, and whether they will result in increased availability (and increased costs) of insurance for small and growing businesses. Even without the law of unintended consequences, I don’t think anyone has a clue as to what the net effect will actually be — even if the CBO did have enough time to do their job right.

However, there are two changes where the results are pretty easy to predict:

  • Increased taxes on the “rich”. Those making over $200k (family income $250k) will pay 0.9% more on earned income and 3.8% on unearned income (such as investments). This will cause the wealthy to choose not to realize income, which over time will reduce the pool of money available for angel investments. (How much? How soon? Who knows?) As an added benefit, like the AMT this surcharge is not indexed for inflation, so this surcharge will eventually become a middle class tax hike — particularly in high living cost areas like Silicon Valley.
  • The 2.3% excise tax on medical device makers. Why those who produce medical innovations should be taxed to pay for increased spending elsewhere is beyond me, but it will shift startups and investments away from this sector.
Both take effect in 2013, presumably to insulate politicians from political consequences until after the 2012 elections.

Anyone who understands economics knows that if you want less of something, then tax it. But then understanding economics is not a pre-requisite for law school, let alone elected office.

1 comment:

Kenneth M. Kambara said...

Well, Afghanistan must seem more and more like a luxury for both parties.

You might find this link interesting summarizing the tax implications:: US House Health Bill Taxes Drug, Device Makers And The Rich.

What concerns me (re: innovation) is the larger macroeconomic prognosis for the US, particularly with Geithner in the Treasury and huge structural issues adding quite a bit of uncertainty, despite the smoke & mirrors jobless stock market recovery. In fact, I would argue that when it comes to macroeconomics, macroeconomists have a tenuous grasp of economics.