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The Affordable Care Act: Taxes, Democracy, and Growth

April 2, 2012 by Robert E. Litan

I have three semi-related thoughts after reading numerous media accounts of the fascinating, and indeed historic, Supreme Court oral argument over the constitutionality of the Affordable Care Act. First, the case would have been far less historic and sweeping had Congress substituted the word “tax” for the words “penalty” and “mandate.” I think it is widely agreed that Congress has the power to use the tax code to encourage or discourage pretty much anything, including a tax on the uninsured if that is what Congress had decided to do. But Democrats were so afraid of the political consequences of using the tax code to encourage the uninsured to purchase insurance that they resorted to the mandate instead, which may prove to be unconstitutional. Second, the ruling seems to come down to the opinion of a single person, Justice Anthony Kennedy. It shows that even under our legal system which prides itself on the “rule of law,” key decisions often come down to one individual. Think of the Chairman of the Federal Reserve as being essentially the only governmental force for macroeconomic stability now that fiscal activism seems to have been discredited by the 2009 stimulus package. Or think of the President, who has the sole authority to commit our troops to military engagement. In short, individuals matter on key decisions that affect the lives of our entire citizenry. In several months, we will see how Justice Kennedy affects us all. Third, whatever the outcome of the Supreme Court’s deliberations, there is one group of people for whom health insurance matters a lot, yet relatively attention is paid to them. I am speaking of entrepreneurs. If you have been reading my past blogs, you’ll know why entrepreneurs are vital to the health of the U.S. economy. Historically, entrepreneurs have been disproportionately responsible for many breakthrough innovations and — at least for past several decades — young firms launched by entrepreneurs have created all net new jobs in the private sector. The data show that the median age of successful high-tech entrepreneurs is near 40. These are individuals who most likely were working for someone else before they launched their companies. These people typically have families and many of them are old enough to have significant preexisting health conditions. If they can’t get affordable health insurance without exclusion of those conditions, and don’t have a spouse whose health insurance covers them, some or perhaps many of these potentially successful entrepreneurs may never try. That is why if the health insurance mandate is struck down, some innovative thinking will be needed to find a way to solve the health insurance dilemma faced by potential entrepreneurs, especially given the dip in entrepreneurial activity since the recession.


Author

Robert E. Litan

2012 Economic Growth Fellow

Robert E. Litan is Director of Research of B-Gov, a subsidiary of Bloomberg LLP. Previously Litan was Vice President for Research and Policy at the Kauffman Foundation and a Senior Fellow in Economic Studies at the Brookings Institution. He has authored or co-authored more than 20 books, edited another 14, and authored or co-authored more than 200 articles in journals, magazines, and newspapers. He has served in several capacities in the federal government. From 1995 to 1996, he was associate director of the Office of Management and Budget, and from 1993 to 1995 he was Deputy Assistant Attorney General. He received his B.S. in economics (summa cum laude) from the Wharton School of Finance at the University of Pennsylvania; his J.D. from Yale Law School; and both his M. Phil. and Ph.D. in economics from Yale University.

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