A word from the BPE

The lead articles today in the two daily papers I take concern tax policy, one at the local level and one at the federal level.

The South Bend Tribune reports that St. Joseph County (in which South Bend, Notre Dame, Granger, and Mishawaka are located) has increased its income tax by 0.95 percentage points. This means that an individual with $50,000 in a taxable income will see his annual tax bill increase by $475, which is no small amount in these “turbulent economic times” in which we live.

Increasing taxes during a recession violates the cardinal principles of fiscal policy from Econ 101, but is the frequent outcome of the political process in local jurisdictions, where there is often strong pressure (if not a legal mandate) to continually balance the budget. St. Joseph county already has an unemployment rate of 11%, which exceeds the national rate (9.7%) by a wide margin. Taking hundreds of dollars out of the pockets of middle class families is likely to result in lower spending (particularly on things like meals out, etc.). Lower spending equals fewer jobs, which entails less tax revenue, eating away at the revenue gains from the tax increase. We’d be much better served if local authorities would allow the budget to temporarily dip into the red while finding ways to curtail unnecessary and wasteful spending.

At the federal level, the Wall Street Journal provides details on the new health bill that just passed the Democrat controlled House of Representatives. Particularly bothersome to me is the provision that imposes a penalty on business for not providing health insurance to their workers. In particular, businesses with total payrolls in excess of $400,000 would pay an 8% penalty if they do not purchase insurance for their employees. $400,000 is an extremely low cutoff – basically any business with more than a handful of workers is likely to have a payroll in excess of $400,000.

The 8% penalty is not likely to be binding for very large companies, who most likely already provide health insurance. Whom it hurts is small and medium-sized businesses, who comprise the vast majority of total businesses in this country. Companies with only a handful of workers pay higher insurance premiums than do large companies – fewer people in the plan means you’re not pooling as much risk, which means higher premiums. Under this new legislation, small business will effectively be damned if they do and damned if they don’t when it comes to providing health insurance.