Always the Wrong Target

News items have popped up that the health insurance rates have increased this year even faster than they did last year, prompting liberal progressive blogs to respond with cries of “evil empire” against the health insurance industry. David Atkins at Hullabaloo writes yesterday that “insurance companies are sticking it to Americans more than ever,” and “insurance companies are using the ACA as an excuse for more profiteering.”

If David checked any facts before slinging accusations around, he would find that insurance company profits are up this year over last, but not by a degree that any sane person would call “profiteering.” United Healthcare improved from a 4.8% profit margin to a 5.0% margin, and Aetna from 6.0% to 6.7%. Humana did somewhat better, improving a 4.0% margin to 5.2%, but WellPoint actually lost ground, with its margin dropping from 5.3% last year to 4.9% this year. Does any of that look like “profiteering” to you?

We always need a target to point fingers at and blame for the problem, and we virtually always pick the wrong target.

Some years ago we needed an “excess profit tax” to punish the oil companies for their usurious ways, only when all the screaming and yelling calmed down it turned out there weren’t any “excess profits” to be taxed because the problem was not the oil companies at all. The problem turned out in part to be speculators, but mainly the money was going to countries who were taking the oil out of the ground, such as Saudi Arabia.

During the “health care debate” the health insurance industry was demonized as being profiteers for making outrageous profits, which turned out to be in no case higher than 9% and mostly significantly less, while health care providers and drug companies who were making far larger profit margins were completely ignored. Now we are back to flaming them as “profiteers” again, without pausing to consider that they do not generate health care costs, they actually pay those costs in our behalf.

Similarly with Obama’s rhetoric about “tax the rich” and his “Buffet rule” on taxation. It turns out that in terms of income tax, the rich actually do pay a much larger portion of their income than middle class and lower income workers. The problem is not with the amount of income but with the type of it. The reason Buffett pays so little is that he derives his income from trading and investment and therefore pays capital gains tax at a lower rate of 15% rather than income tax at 33% that the rich pay on their income.

The solution is not to “tax the rich” by raising their 33% rate, because doing so would leave Warren Buffett still paying 15% tax on his income. The solution is to change the way that traders and investors pay tax on their earnings, and neither Obama or anyone else is talking about doing anything of the sort. So the “Warren Buffet rule” will not raise Warren Buffet’s taxes.

We are once again pointing our finger at the wrong target, because it is not “the rich” who are “not paying their fair share,” it is traders and investors who are not doing so.