Pro-family, pro-market reforms to health care and the tax code – a possible middle ground

by Ryan Streeter on March 18, 2013. Follow Ryan on Twitter.

Reihan Salam’s thoughtful Reuters column addresses how Republicans might use the Paul Ryan and Patty Murray budgets to achieve some important policy reforms:

Between these two budgets lies a potentially attractive middle ground, and the interesting question is which party will get there first…

The first step would be for Republicans to rally around James Capretta’s market-based alternative to the Affordable Care Act. Like Ryan, Capretta starts out by repealing most of the ACA. But he also reforms the tax treatment of health insurance to curb the benefits for the highest earners while creating a refundable tax credit for individuals without access to job-based coverage. He also overhauls the Medicaid program by giving state governments a fixed amount of money per Medicaid beneficiary that they can combine with the refundable tax credit to buy coverage for low-income residents. To broaden insurance coverage as much as possible, Capretta proposes that states provide default insurance options for individuals who don’t actively use their tax credit to purchase coverage. Capretta’s path to universal coverage wouldn’t be free, but he argues that it would cost a fifth or less of what the coverage provisions of the Affordable Care Act are expected per year.

The second step would be for Republicans to call Patty Murray’s bluff on taxes. Murray is right to believe that cutting tax expenditures on high earners could generate a great deal of revenue. Diane Lim of the Pew Charitable Trusts recently observed that capping the total dollar value of itemized deductions at $17,000 would raise $1.6 trillion in revenue over the next decade. One awkward challenge for Murray, however, is that some of the biggest beneficiaries of the loopholes and unfair spending in the tax code she condemns are two-earner couples living in high-tax jurisdictions like New York, New Jersey and California, a vital part of the Democratic coalition.

With this in mind, Republicans ought to embrace Murray’s call for closing loopholes and cutting unfair tax code spending. But instead of using this new revenue to finance government spending, Republicans should insist it be used to dramatically expand the popular child tax credit. Robert Stein has proposed a $4,000 per child credit that could be used to offset income and payroll taxes, a measure that would increase the disposable income of millions of middle-income families. While Democrats often accuse Republicans of wanting to cut social programs to finance tax cuts for the rich, they’d have a much harder time attacking the GOP for cutting tax breaks for affluent coastal suburbanites to finance tax cuts for middle-income families with kids.