A tourniquet can be a lifesaver when serious bleeding is occurring. But when the bleeding has stopped — when the source of the problem has been identified, and fixed — you remove the tourniquet. Otherwise, you risk developing gangrene in the limb that needs the blood supply that you’ve just cut off. At least, that’s how it works in medicine. In politics, we just leave the tourniquet in place indefinitely.
Here are a couple of examples, both from World War II.
First, the government needed money in a hurry, and couldn’t wait around until April to collect income taxes that it could use to fund the war effort. So it instituted withholding taxes, where you pay your taxes in installments during the year, instead of in a lump sum at the end of the year.
Second, the government instituted a freeze on wages and salaries in order to ‘stabilize the economy’. So a company that wanted to attract a talented worker from another company couldn’t offer a higher salary as an incentive. But it could offer pre-tax benefits, like medical insurance, which didn’t count as salary.
Now, as most of you know, that war ended about 75 years ago. But those tourniquets are still in place! And the results are a kind of political gangrene.
Withholding created a situation where most people are unaware of just how much they’re paying in taxes, focusing instead on how much they take home each week or month. This has allowed taxes to grow far beyond what people would stand for if they had to cough up the whole amount once a year.
Pre-tax benefits have done even more damage, by grossly distorting the normal mechanisms for both health care and employment. The idea that how you pay for health care should be tied to your employment is… well, in a word, insane.
First, it hides actual costs in much the same way that withholding does. (No one looks at the prices of procedures, or the contributions made towards premiums by their employers. They only look at their co-pays and deductibles.) This has allowed health care costs to grow almost without bound.
Second, it creates two classes of citizens — those lucky enough to get health insurance through their employers, and those unlucky enough to have to get it from the government.
Third, it provides employers with an increasingly powerful incentive to replace full-time employees with part-time employees and contractors, to incorporate automation wherever possible, and do whatever is necessary to avoid providing pre-tax benefits.
There’s more, but you get the picture.
You want to see tax reform? Get rid of withholding, and watch the revolution that occurs when people are told they have to fork over $5,000, or $30,000, or more by April 15.
You want to lower the cost of health care? Get rid of pre-tax benefits, pay people their wages and salaries, and let health care providers compete for their business.
The point is that while politicians constantly bicker about what we have to do, there’s a kind of political blindness that prevents them from thinking instead about what we need to stop doing.
Instead of leaving these and other tourniquets in place, and trying to deal with the problems they create, why not eliminate the problems themselves by removing the tourniquets? A ‘solution’ to a problem that no longer exists is yet another problem.
Now, those two tourniquets are federal in nature, so removing them isn’t something that New Hampshire can do on its own. But there is another permanent tourniquet that is more local in nature, that we can do something about: the public school system.