Will Obama's health care reform hurt GDP?

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It's been said that President Barack Obama leads the league in multi-tasking, but is the president pushing for too much change, too soon?

Perhaps. Although some argue the time is ripe for what political scientists call "nonincremental change," the financial crisis and recession that Obama inherited, combined with the Obama administration's interest in also seeking health care reform, while restructuring the federal budget as well as fighting wars in Iraq and Afghanistan, strike many public policy watchers as an agenda for two terms, not one.

New York Times columnist Frank Rich takes the contrary view, arguing that Obama should not only try to achieve all his goals, but also that if he doesn't, historians may judge the administration's greatest flaw to be proposing too little change, not too much. Big change is needed to help a new economic order rise from the ruins, Rich said.

Health care reform could lower GDP

One key to Obama's new economic order is health care reform, which, if enacted with the correct programs, will lower the budget deficit (by making health services less costly for Medicare and Medicaid), cut corporate costs (by their decreasing their group health care premium costs), and increase capital available for economic growth (by reducing total dollars spent on health care services, nationally). The key upside would be, of course, the gradual establishment of universal health care in the United States and health care dollars freed up for other economic uses. Still, it's important to point out that those dollars saved could take away from GDP, if in fact the system results in a net decrease in health care dollars spent.

In other words, health care reform may serve to contract the U.S. economy at a time when the Obama administration and Congress are providing stimulus to get it to expand. That fact, combined with the administration's proposed $58 billion in new taxes to help pay for health care reform, could undercut the whole point of fiscal stimulus, which is why the administration has to proceed cautiously regarding those initial health care steps. The last thing the nation needs is several new taxes that further reduce demand or business investment at a time when it appears the U.S. economy may be just starting to develop some traction.

A tax on corporate health care benefits?

Further, at this juncture it looks like a tax on corporate-provided health care plans, which the Obama administration is considering, Bloomberg News reported, would represent too much change, too soon, or a policy proposal at the wrong time. Most corporations are facing the toughest macroeconomic and credit market headwinds in decades: another corporate-based tax is not a way to stimulate commerce and job growth.

What new tax(es) should be passed to help pay for health care? That's the $64,000 question (actually, it's probably a $645 billion question) for Congress. Perhaps a tax on stock and bond securities transactions, combined with a Medicare-esque, small health care tax for individuals who don't have health insurance, would represent steps in the correct direction. Two other potential taxes: a tax on oil per barrel and its natural gas/coal equivalents.

Hence, throughout the health care reform endeavor, the Obama administration and Congress have to keep this research question pasted at the top of their dissertation: "Will these new taxes or other measures lengthen the recession?" If any new actions do, the administration would be wise to moderate the timetable for their phase-in. Health care reform is essential to address excessive health care costs throughout the American system, but it must be implemented "with all deliberate speed," to cite a Supreme Court phrase, lest it delay that vital U.S. economic recovery.

Financial Editor Joseph Lazzaro is writing an book on the U.S. presidency and the U.S. economy.

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