Tax incentives sound nice, but they often produce the wrong results down the line. For example, deductibility of interest payments on home mortgages encouraged home ownership, but it also encouraged buying up and buying more. Along with the tax-free nature of profits from home sales, we have witnessed home prices skyrocket and then crash.
Spurring home ownership is supporting the American dream, but we now have 20 percent of all homes underwater—worth less than their mortgage, and people as well as banks are suffering as a result. With less home equity, less is available to invest in growth and expansion of our businesses.
Energy incentives are likewise intended to stimulate business activity. Given the high cost of gasoline and global warming and clean air considerations, it makes sense to promote alternative forms of energy that are less costly and improve our environment. Yet, every time the government offers a tax credit or incentive, the prices of these alternative products seem to go up by the amount of the tax deduction created by the incentive.
Benefit incentives brought about by World War II’s prohibition on wage increases encouraged employers to provide health care insurance to employees. Now, we learn that the cost of health care insurance has risen another nine percent from last year. According to the Kaiser Family Foundation, the average annual premium for family coverage through an employer has reached $15,073 in 2011.
This steep increase coming in the midst of our recession and period of high unemployment is extremely unnerving. In fact, premiums have doubled since 2001, when they averaged $7,061. Many small businesses have raised the employee contribution to healthcare insurance, while others have abandoned coverage for employees all together.
Some reasons for these increasing costs are a result of increased mandated coverage…like mandated coverage for all individuals up to the age of 26, coverage of pre-existing conditions, and unlimited benefits. Employer-provided health care coverage has led employees and their families to seek all the medical care and support they can gather that is paid for by their employer.
In an effort to reverse some of these unintended health care consequences, the new Patient Protection and Affordable Care Act passed in 2010 incentivizes health care insurance purchases up front and lowers deductibility of health care expenses incurred after the fact. New, refundable tax credits subsidize health care premiums for Americans with incomes between 100 and 400 percent of the federal poverty line. That is about $88,000 for a family of four. The threshold for deductibility of medical expenses rises from 7.5 percent of adjusted gross income to 10 percent after 2014.
We are in a slow transition away from employer-provided coverage. In order to reduce costs, it is important for consumers to assume more individual responsibility for health and health care. We will not know the impact of these incentives for several years, but the sheer impact of shifting these costs from the employer to the employee will likely reduce health care spending to a significant degree.
We all continue to live longer and our health care keeps advancing, becoming ever more expensive. At the end of the day, we simply cannot afford these year-over-year increases that reduce our net income and our quality of life. We can only afford what we can afford. Already people are living with less care and less preventive care, which will inevitably result in more costs down the road or dying sooner. It’s fair to say that the system as is, is killing us.