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Wednesday, November 21 , 2018, 1:09 am | Fair 50º


Harris Sherline: The Power to Destroy

'Public option' shows how government control affects wealth, incentive

“The power to tax is the power to destroy.” Justice John Marshall’s famous observation in the Supreme Court case McCulloch vs. Maryland (1819) is one of the immutable truths that have stood the test of time.

Harris Sherline
Harris Sherline

Taxation not only can destroy wealth but perhaps, more important, it can and often does destroy incentive — the incentive to work and produce, not just for individual gain, but also for the benefit of others.

However, the government has other powers that can destroy both wealth and incentive, such as the power to set or fix prices and the power of the purse strings. The Obama administration has been using or trying to use all three with reckless abandon, which accounts for the growing frustration of the American public as it becomes increasingly aware of the irresponsible proclivity of both Obama and Congress, working together to remake the United States into a new socialist state.

A good example of how the power to fix prices also can destroy is the “public option” that is part of President Barack Obama’s proposed health-care reform plan. It’s a government-operated insurance system that would compete with private health insurers, theoretically in order to keep them “honest” (competitive).

However, the government is incapable of successfully operating any business in a free market. Government entities always lose money, and the public insurance “option” would be no exception. Obama noted as much in an Aug. 11 town-hall meeting about his health-care plan when he observed that both FedEx and UPS successfully compete with the postal service, which must periodically obtain additional funding from Congress to continue operating.

Furthermore, although it is bound to fail financially, a government insurance entity will not have to worry about going out of business, because it will have a source of unlimited funding. With that kind of power, the government’s health insurance company is bound to ultimately drive private insurers out of the market.

The Heritage Foundation’s “Morning Bell” reported that, working with the Lewin Group, a study undertaken to determine “how many Americans would be forced into the government ‘option’ under the House health plan” found the following:

» About 103 million people would be covered under the new public plan and, as a consequence, about 83.4 million people would lose their private insurance. This would represent a 48.4 percent reduction in the number of people with private coverage.

» About 88.1 million workers would see their current private, employer-sponsored health plan go away and would be shifted to the public plan.

» Yearly premiums for the typical American with private coverage could go up by as much as $460 per privately insured person, as a result of increased cost-shifting stemming from a public plan modeled on Medicare.

Government also can destroy wealth and the incentive to work with price controls, which have always failed and invariably result in shortages. A graphic example of this is the oil crisis during President Jimmy Carter’s administration in the 1980s, which caused extreme disruption of the supply and resulted in long lines at service stations, when people became so frustrated that some drivers became violent.

The Obama administration also has been demonstrating another consequence of the power of government to destroy wealth and incentive with its uncontrolled spending. This has resulted in massive budget deficits that can be funded only by issuing bonds or printing money, either of which ultimately causes inflation.

Another example of the power to destroy wealth and incentive by being able to dictate prices is noted in a Breitbart.com report of July 17: “The White House is asking Congress to give the executive branch more power to limit Medicare’s rising costs.” Because the federal government has unilateral authority to set prices for health-care services to Medicare and Medicaid patients, it is in a position to affect (destroy) the incentive of doctors and other providers, increasing numbers of whom are deciding they will no longer accept Medicare or Medicaid patients.

In the final analysis, the government’s power to destroy wealth and incentive through taxation and its ability to fix prices can only be controlled by an aroused public, pressuring elected representatives to resist the attempt to impose such burdens on the freedom of the nation’s citizens.

— Harris R. Sherline is a retired CPA and former chairman and CEO of Santa Ynez Valley Hospital who has lived in Santa Barbara County for more than 30 years. He stays active writing opinion columns and his blog, Opinionfest.com.

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