Spare us the complaints about healthcare 'redistribution'

With the season of joy, good will toward men and shopping fully underway, it is an appropriate time to reflect on the emotional chords struck by the latest attacks on healthcare reform. Opponents want to refocus national attention on the law's impact on income distribution.

The New York Times called attention to the “redistributionist” issue in a front-page story the Sunday before Thanksgiving. The White House, reeling from its botched rollout of the insurance exchanges, now considers it “toxic” to discuss the fact that reform takes from well-to-do people to pay for new healthcare benefits of low- and moderate-income Americans without insurance.

The story even quoted Massachusetts Institute of Technology economist Jonathan Gruber, one of the key architects of the reform law. “You cannot have (a fair and fixed insurance market) without some redistribution away from a small number of people,” he said.

The Times story was dredging up an argument that had been fully vetted during the 2008 election when healthcare reform was a major issue and Republican candidate John McCain accused Barack Obama of engaging in class warfare. He called the soon-to-be president the “redistributor in chief,”

It was also debated at the time of the law's passage in 2010. A Wall Street Journal editorial complained bitterly at the time about “the largest wealth transfer in American history.” Using Tax Foundation numbers, the editorial estimated “Obamacare's new 'health-care funding plan' will shift some $104 billion in 2016 to Americans in the bottom half of the income distribution from those in the top half.”

Yet how different is healthcare reform, which subsidizes the purchase of health plans by low- and moderate-income people, from any other government program? Food stamps are a wealth transfer program. The government collects taxes and uses some of that money to subsidize the food purchases of people who cannot afford their weekly groceries.

Or, on the opposite side of the redistributionist agenda, how different is it from the carried-interest special tax break? That tax loophole allows hedge fund managers, who reap gargantuan annual incomes from managing other people's money, to pay income taxes at the capital gains tax rate instead of at the regular income tax rate, which is more than twice as high.

That is redistribution, too. It redistributes income from everyone who pays at higher tax rates—Warren Buffett's secretary, for instance—to those well above them on the income scale.

Indeed, virtually everything government does involves redistribution because of the unequal distribution of income and the progressive nature of the U.S. income tax system. Taxes are collected mostly from people with higher incomes and redistributed to some special interest: a Pentagon contractor, a subsidy for an exporter, and soon, a person who can't afford health insurance.

Because reform needed to be budget neutral, the law raised the money for its redistribution in a couple of ways. About half of the newly insured were slated to gain coverage through an expansion of Medicaid, which is a taxpayer-supported program. Its costs are about equally shared between the federal government and the states. Pay sales tax on a six-pack of soda pop at the corner grocery and some small part of that tax in 2016 will go to pay for the newly insured Medicaid residents in your state—if your state is among the group that expanded the program.

Payment for the subsidies for the individual policies sold on the exchanges comes from the federal government's general fund. It levied fees on insurers, drug and devicemakers and high-cost insurance plans. It raised Medicare taxes on the well-to-do. It cut payments to hospitals and more.

Economists endlessly debate who ultimately pays taxes, with many arguing levies on businesses are always passed along to consumers. Suffice it to say that the taxes needed to pay for reform were skewed toward wealthy individuals as well as businesses and institutions in the business of healthcare.

Complaining about redistribution, then, is really a complaint about the program or progressive taxes or both. What it's not is some misuse of redistribution implicit in the power to tax. Notably, opponents of reform never complain about programs that redistribute taxpayer money in ways that they like.

Follow Merrill Goozner on Twitter: @MHgoozner