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Thursday, September 23, 2010

ObamaCare and its Constitutionality

Before I start into my analysis of this article, I want to make a disclaimer that I am not trying to make a political statement or trying to bash the Obama administration. I am simply trying to gain an economic understanding of what is occurring in our nation's government.

If you haven't heard about the new health care plan that was passed by Congress not too long ago, the basic concept is that it will provide health care to every single American, and not having it can get you fined. It will be mandatory for every citizen to have this health care coverage under law. The point of this article is discussing whether the Supreme Court will deem the law unconstitutional, but that is not my focus in this blog entry. How the health care becomes affordable and what the law includes is my main focus.

As we have learned in class an excise tax, or corrective tax, is used when there is a negative externality. The excise tax increases the price of the good, which leads to a lesser amount of the product being produced, which leads to fewer people buying the product. An example of excise tax we have discussed is air pollution. There is an equilibrium amount of air pollution, but then there is also an efficient quantity of air pollution, which is commonly not zero. About halfway down the article the Mr. Barnett tells the reader that the bill does include some excise taxes that are supposed to be used to help offset the cost of the healthcare plan. One of the those excise taxes is going to be imposed on tanning salons. To me this should not be called an excise tax or there is no reason to have an excise tax in this situation.

An excise tax is used when a negative externality occurs to achieve an efficient output of that good. Looking at what we know about negative externalities, they are an unintentional, non-market, interdependence. In other words, one person does something, makes someone who they don't know better or worse off with no exchange, and the effects are not intended. Tanning salons are the opposite of what we have just said. A pasty white person wants a tan so they walk into a tanning salon, exchange money for time in the UV tube, are made happier because they now look orange which is cool to them,. There is nothing about tanning salons that could possibly be argued as a negative externality unless the UV tubes emit some sort of ray or by-product that we do not know about. Summing it up, there is no reason for the "excise tax" that is including in the new health care plan.

As for how this new health care becomes affordable to all citizens as the President has proposed, a government subsidy would have to be involved. The government will provide money to pay for health care so that all Americans can avoid health care, which implies a subsidy. Since government will be partially subsidizing health care, then that raises the question whether there is a positive externality associated with universal health care. Using the criteria that we used in the previous paragraph, I do not believe there is a positive externality from this health care plan. The government is essentially forcing its citizens to purchase health care, although at a discounted price, but everyone having this health care does not make any third party better off. The only party benefitting from this is the people that could not have afforded health care before. Although this is a great cause and one that I personally believe in, using our economic knowledge, there is no room for government involvement in this situation.

Hey Spencer, I think your blog is well thought out and well written. I think the main idea behind the tanning salon tax though is that it could potentially cause skin cancer and would therefore require future health care for those that used the tanning bed, and which might also increase costs for other insurance buyers. However I believe that most of this plan comes into conflict with a value judgment most Americans and myself included hold dear, freedom. Being mandated to purchase a good or service is something I think no one should be forced to do by their government or anyone else.
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