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Socialized Medicine

By Matthew Yglesias on August 16, 2009 at 5:26 pm

"Socialized Medicine"

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Avedon Carol asks “Did you know that aside from Denmark and Luxembourg, the country that spends the most tax money on healthcare per capita is the United States?”

I actually did know that. But it’s worth noting that in addition to all this direct public sector spending on health care, we have a very large set of hidden subsidies in the tax code. Basically, when a company gives you health insurance as part of your compensation, the firm can deduct that as one of its costs. Which makes sense, because it’s a cost. But you don’t pay taxes on the benefit, even though the benefit is clearly part of your income. That creates a pretty strong incentive, at the margin, for firms to pay people lower wages and offer them more generous health care benefits than they otherwise would. That’s good for some people and bad for others, and most of all is a large subsidy for the entire health care industry. But it’s hidden from view when people scrutinize the public accounts.

And there’s rather a lot of this sort of thing going on in the United States. Part of the high price of our political system’s insistence on relatively low levels of taxation is massive reliance on tax subsidies and regulatory mandates to do work that could be better done through taxes and public disbursements of funds.

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