Wednesday, January 25, 2006

Find the Economic Mistake

This paragraph comes from a Washington Post article on Bush's new health care proposals:
President Bush will propose that Americans be allowed to take tax deductions on more of their out-of pocket medical expenses, as part of an initiative the White House believes will rein in soaring health costs by shifting responsibility toward individuals, according to congressional and other sources familiar with the administration's thinking.
Find the economic mistake in that paragraph or rather find the faulty economic reasoning. Extra credit for the first one to identify it correctly (and state why it is incorrect, of course).

[Students: You get credit for a blog entry even if you just give a good guess; it does not have to be right.]


Anonymous said...

it is incorrect that tax deductions on out of pocket money will decrease medical expenses. If people spend their own money and get deductions even more money will have to be brought in to pay for all the people who are unable to pay for themselves. So healthcare costs would go up because rich people would pay for themselves and not bother going through health insurance so there would be less money to pay for hte poor people who cann't afford healthcare and to compensate prices would be raised.

erin clay

Anonymous said...

I'll try, even though this is likely wrong since it just popped into my head. If people do not have to pay as many taxes, and medical care for the poor is financed by taxes, then the rich will benefit while the poor will be even worse off.
-andrew gelly

Arthur said...

I fail to understand how a reduction in tax revenue resulting from including more deductions can result in shifting the responsibility to individuals. The majority of Federal Government costs for health care comes from the un-insured, the poor, and government employees. Increasing the cost to the Federal Government by allowing more potential deductions, that are only taken by those who itemize and have extremely high bills anyway, can only encourage greater use of those types of services [Supply & Demmand] as the tax code serves to encourage certain types of activities. I would suggest that the increased use of those deductible types of services would encourage their use but not lead to lower costs as they would be deductible to the user.
There does not seem to be any documented evidence that tax deductions for medical expenses has any effect on medical costs.