Reason for a New Age

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    What you will expect to see here are discussions of politics and tangentially economics. This blog will do its best to present a rational look at the world of today, how the modern world came into place, and the issues that are currently being discussed in the public realm.
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Why the Health Care Bill Doesn’t Matter One Jot

Posted by publius2point0 on 2010/03/22

If you look back at the history of countries as they converted to universal health care, you’ll notice that the amount they spent per capita didn’t change at all. The angle of the line of spending increase from year to year did not lower, nor did it increase. If you look at the yearly spending on health care on a country over a 60 year period, you cannot tell by looking at it whether universal health care was passed in that country within that time period. The only way to know is to specifically look it up. And given that the US is the only modern country which has not passed universal health care, there isn’t a shortage of examples.

There’s a reason for this: People don’t allow people to die, or at least not in a country that has any chance of getting universal health care passed. In the US, if you are sick and can’t afford it, you go to the emergency room. The money to pay for your care doesn’t come from nowhere, someone is paying it. There are, in end effect, 0 people in the nation who are not covered by health care (though it’s unofficial).

Now the way that taxes work is that people who don’t have money, even if you tax them, the money goes right back. And of everyone who’s worth taxing, only a small percentage hold almost all of the money. Taxing anybody else but those people holds no particular value.

Let me show what I mean.

The income distribution of the US looks about like this:

(Rough) Income Distribution

That’s just a rough estimate from trying to modify the formula for a skewed normal distribution to match the true distribution of wage in the economy. It doesn’t quite fit the real distribution, but having a formula allows me to get a nice curve and do math on it.

Multiplying the wage by the number of people with that wage, we get a chart that looks like this:

I can tax all of the people making $350k or more anything from 0% to 100% and  the amount of money I’ll have is only a small percentage of all money in the American economy. The US government requires about 40% of personal income to be able to operate and you can’t get that much money from anywhere but under $150k a year (approximately).

But, as you will recall from our discussion of the minimum wage, anyone making less than $11.25 an hour ($32,400 a year) is actually costing the rest of society money just for that person to survive at the minimum standards of society. If you look at the distribution of taxable wage in the US under that light, it actually looks like this:

Truly Taxable Income Distribution

People talk about “fair tax” or “progressive tax” or whatever else, but the simple truth is that all tax comes from the people who have the money to be taxed. The economy is a big loop, every time you take money from where it isn’t, money is leached off from where it is via some means, to eventually end up at that point. There’s no other viable way of taxing anyone. To a large extent, all discussion of what the tax rate should be per income bracket is entirely meaningless. The only way in which it truly matters is that for money to meander its way from where it is to where it is going, the more loops through the system it takes to get there, the lower the rate of efficiency. You end up employing more people to deal with moving money from point A to point B for every iteration through the loop it takes, which is a needless waste.

What this means is that your personal tax rate doesn’t matter, just whether or not the government is spending money on something worthwhile. The amount you make will, in end result, will not change a jot (over the long term) as the tax rate changes so long as what the government is actually spending money on is still the same.

Right now, the government is covering the cost of care for everyone who can’t afford it, via money for the ER. That same amount of money will henceforth be spent on the cost of care for everyone who can’t afford it, via money for insurance. That total amount will be exactly the same, because that’s proven by every other nation which changed to universal health care. And in end result, the amount of taxable money being made by everyone doesn’t change.

The only difference that will emerge is that when the poor need care, they go to a doctor instead of to the ER. That is probably better, but it’s hardly a sweeping change.

The main problem with the new legislation is that it does not solve the issue of cost. For that to have happened, all care would have either have needed to go through the government, or for all insurance to become paid by the individual directly, instead of by his company. Eventually this change will occur, since if it doesn’t health care spending will continue to grow past feasibility, but for all that time until then, it continues to be an unnecessary burden on the economy.


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