Is Taxation Theft? Philosophy of the Senate Health Care Bill

This week, the Senate released their secretly-drafted health care bill to repeal-and-replace the ACA. The bill has many components, expertly explained in this Vox piece by Sarah Kliff, but the main provisions are as follows:

• The bill phases out enhanced federal payments for Medicaid expansion enrollees by 2024. The ACA expanded Medicaid to anyone under 138% of the poverty line in the states that participated. In order to encourage expansion and ease states' budget concerns, the federal government would initially pick up the tab for these new enrollees, and pay 90% of their costs by 2020. The Senate bill would revoke these enhanced payments and return to the normal payment rate, where states and the federal government split the costs.
• The bill would make further changes to Medicaid, converting it from an open-ended entitlement program to a per-capita funding system. Right now, the government pays whatever costs the program incurs. In contrast, the Senate bill would allocate a fixed lump-sum grant for each enrollee, with different funding levels for different groups (e.g. higher funding for the disabled, and lower funding for children). Furthermore, starting in 2025, this per-capita grant would grow based on the urban CPI, an inflationary index that typically grows slower than the rate of Medicaid spending.
• The Senate bill would also shrink tax credits for enrollees in the individual market. Right now, individuals below 400% of the poverty line that purchase their own health insurance are eligible for federal subsidies. The Senate bill would lower the eligibility threshold to 350% of the federal poverty line, and make the subsidies less generous.
• The Senate bill eliminates the individual mandate, meaning that healthy individuals may opt out of buying insurance, raising the likelihood of higher premiums for the remaining, sicker population.
• The Senate bill overhauls ACA waivers. Right now, states can apply for waivers that allow them to experiment with different health care systems, so long as they “provide coverage that is at least as comprehensive as the coverage” defined under the ACA” and “cover at least a comparable number of residents.” The Senate bill drastically expands the availability of these waivers by only requiring that health care changes to be deficit-neutral. As a result, states could opt out of covering the ACA's "essential health benefits", which requires health plans to cover certain key services.

All in all, the Senate health care bill cuts Medicaid, makes federal subsidies less generous, and allows for insurance to be less comprehensive. Why are the Republicans doing this? For the same reason they do almost everything: tax cuts for the rich. The Senate bill repeals a long list of Obamacare tax hikes: 

• 3.8% surcharge on investment income for families earning above $250,000 ($200,000 for individuals).
• Medicare payroll tax hike for families earning above $250,000 ($200,000 for individuals).
• Taxes on tanning salons, the health care industry, and the medical device industry.

This bill hardly seems to be a health care bill at all. If Republicans truly wanted to improve the American health care system, they would institute measures to shore up the individual marketplace, increase competition, improve access, and cut costs. This bill makes all these problems worse. It would likely destabilize the individual markets by eliminating the individual mandate, worsen access to health care by gutting Medicaid and insurance subsidies, and do nothing to enhance competition in the system. The bill might slightly cut health care costs by making consumers more price-sensitive due to higher co-pays and deductibles, but it still wouldn't address the supply-side problem of extraordinarily high prices.

Instead, this bill is a tax cut for the rich dressed up as health care reform.

Now, I understand conservatives' revulsion to taxes. Most ideological conservatives and libertarians think taxes are theft, and thus want the lowest possible level of taxation. They also think that government infringes on the free market through burdensome regulations, counterproductive programs, and crony capitalism, all funded through taxation. Thus, lowering taxes curbs theft and starves the government, causing it to shrink. However, conservatives' push for tax cuts in the Senate "health care" bill has two fundamental flaws.

The first is pragmatic: why take aim at Medicaid for budget reductions when there is so much low-hanging fruit? For example, Republicans could save $125 billion by cutting administrative waste at the Pentagon, according to an internal report. Senators could also target corporate welfare. According to the Cato Institute, corporate handouts in the federal budget cost taxpayers almost $100 billion a year. Farm subsidies are also expensive, costing about $20 billion annually. Why target the poorest and neediest Americans by curbing access to health insurance, when there are many other viable targets for budget reduction that don't incur the same human costs?

The deeper problem with the Senate tax cuts is its incoherent ideological basis. Libertarians' notion of taxation as theft seems based on a framework of categorical imperatives, where certain actions and behaviors are immoral no matter what. Under this Kantian view of morals, lying is wrong under any circumstances. To many Libertarians, taxation is wrong because it is theft, and theft is wrong... because it is wrong. However, a Utilitarian view holds that taxation can be moral even if it is theft. Utilitarians view theft as moral if the benefits adequately outweigh the costs. While some critics contend that this can lead to some unsavory outcomes, such as stealing deadbeats' organs to provide for transplants, 'rule' Utilitarianism holds that the rules under which society is governed are the topic of moral analysis. Individual actions that may produce a net societal benefit, such as in the above example, are not the important focus. Rather, the rules allowing such actions should be scrutinized. For example, a rule allowing for organ harvesting would be immoral, because it would create societal chaos that would outweigh the benefits to injured patients.

Both a Kantian view and a Utilitarian view of taxation fail to justify the taxation-as-theft Libertarian approach. Under a Kantian framework, all taxation should be outlawed. However, most Libertarians advocate for low levels of taxation to fund basic public goods, such as defense and police. Why is such taxation permitted? The answer can't hinge on the costs of not procuring these public good, because that logic slips into Utilitarian thinking.

However, the Utilitarian view of taxation-as-theft also doesn't support Libertarians' tax-cutting dreams. For starters, many programs that Libertarians want to cut easily pass cost-benefit analysis. For example, most Libertarians oppose universal pre-K education. Utilitarian Libertarians would probably argue that government provision of pre-K education would crowd out private pre-K programs, infringe on parental choice, result in higher taxes, and provide meager benefits inadequate to justify the aforementioned costs. However, there don't seem to be many private schools to crowd out: only 50% of 4-year-olds from families in the lowest income quintile are enrolled in preschool, with many using the federal Head Start program. While the numbers are higher for affluent families, the free market seems to be undersupplying preschool for those that most need it. Furthermore, many Libertarians underestimate the benefits of pre-K education. According to the Department of Education, "expanding early learning... provides society with a return on investment of $8.60 for every $1 spent." I have a hard time imagining that these gains don't outweigh the costs of higher taxes on the rich and middle-class.

And thus we come full circle: the same dynamic is at play in the Senate health care bill. Utilitarian Libertarians that oppose Medicaid might argue that the free market would provide better healthcare, and that the current state of affairs results from too much government meddling. However, they offer scant evidence for this view, and can't point to a single health care system in the world that is truly free. Instead, they overlook the massive return on investment from Medicaid, and dismiss the benefits to health outcomes. Again, I have a hard time thinking that the pain of slightly higher taxes on high-income households outweighs these enormous benefits.

So there we are. From both a pragmatic viewpoint (there are better areas to cut spending) and an ideological one (Utilitarian Libertarians can't plausibly argue that the costs of Medicaid outweigh its benefits), the Republicans' tax cutting crusade makes no sense. Republicans either need to own up to their intellectual errors and rectify them, or change course by reversing their views.