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Sunday, February 20, 2011

The intersection of Medicare and the Death Tax

The GOP suddenly learned to love Medicare when Pelosi et al decided to sacrifice seniors' healthcare in order to move several steps closer to socialized medicine. This Republican change of heart is destined to be short lived. When the fickle GOP returns to its senses, perhaps the Republicans can enlist the Democrats in transforming Medicare from a middle class subsidy to a program for the needy. Attracting the Democrats to the table requires powerful bait. I recommend the Death Tax.

When I turn 65, I am 'entitled' to have the government subsidize my health care costs. Of course, when I say 'the government subsidize' what I really mean is have hardworking taxpayers subsidize my costs, even those who are less financially successful. When I am 65, I will have no kids to support, no mortgage to pay, and hope to have many years of work ahead of me. Years of picking up chalk, pen, and mouse may have taken their toll on my health, but why should those saving to buy a house, to put their kids through college, or to pay off their credit cards and student loans subsidize my health care? The old answer is that the left has always wanted entitlement programs to extend to the middle class so that they get broad voter support.

The current Death Tax compromise is a rate of 35% after an exemption of $5 million dollars. The ability to pass on the fruits of your labors to your children maddens Democrats almost as much socialized medicine delights them. Let's compromise. Tell the left that you will tax my estate at 100% (not until after my wife passes please) until you have recovered 100% of the subsidy the taxpayers have contributed to my healthcare. Then you revert to 35% of [remainder - ($5 million - subsidy)]. If I have saved less than $5 million, then my Death Tax is simply the cost of the subsidy. I have, of course, been paying Medicare taxes for years, but more fool I, if I really believed they were linked to my own welfare.

Now comes the fun part. How do we determine the cost of the subsidy? Is this more of a political or an economic question? Any Democratic leveler will want the subsidy to be priced as high as possible to prevent robber baron math faculty from paying for their grandchildrens' college tuition instead of relying on the state to subsidize it. To prevent the robber barons from being gouged, we have to allow them to opt out of Medicare and fund their own health care. I doubt the left will have the self control to undervalue the subsidy. If we are lucky, the true costs of Medicare become clearer and more people will opt out. I haven't crunched any numbers (we need to find some employment opportunities for economists), but a death tax/Medicare compromise seems worth exploring on the road to weaning the middle class from entitlements.

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