By Phil Kerpen
The latest iteration of Build Back Better – the president's multi-trillion-dollar tax-and-spending binge that has been stalled in Congress all year – purports to reduce the cost of prescription drugs via negotiation. But Medicare prescription drug plans already negotiate prices aggressively; as Obama's CBO director Doug Elmendorf explained back in 2009: "additional authority to negotiate for lower drug prices would have little, if any, effect on prices for the same reason that my predecessors have explained, which is that private drug plans are already negotiating drug prices."
So how can Democrats extract the $250 billion they are counting on draining from Medicare drug spending to fund the creation of new, unrelated welfare programs in Build Back Better? They don't negotiate – they impose price controls. Starting with 10 drugs but sure to expand over time from there, the secretary of HHS would "negotiate" by setting the "maximum fair price" – and if the manufacturer disagrees, they are subject to a tax on total sales of that product that starts at 65 percent, then jumps to 75 percent after 90 days, 85 percent after 180 days, and finally a shockingly confiscatory 95% after 270 days. A price set by government under that threat is a price control, not a negotiation.
Price controls always lead to shortages, and draining $250 billion from Medicare – sure to rise as the price control scheme expands – will mean shortages of life-saving medicines for seniors. An analysis of an earlier version of the Democratic price control plan by University of Chicago researchers found that it would lead to between 167 and 324 fewer new drugs being developed over the next two decades, with R&D spending plunging about $1 to $2 trillion.
There is no free lunch. If politicians slam the breaks on Medicare prescription drug spending, seniors will inevitably have less access to innovative drugs.
We might expect major U.S. corporations to understand the basic reality that markets allocate resources better than politicians, and that price controls do more harm than good. Unfortunately, when it comes to health care policy, the HR department seems to call the advocacy shots even when the C suite would know better.
When the latest Democratic draft was announced, Bloomberg ran an article with the surprising headline "Drug Price Deal Hailed by Employers as Key Step to Slash Costs."
The American Benefits Council, which represents hundreds of large employers, said they were "very supportive of the provisions."
"The negotiations provision will be a foot in the door," the article quoted the ERISA Industry Committee saying favorably, that would lead to the extension of drug price controls to private plans outside of Medicare.
But there is no reason to think that, once opened, the price control door would be limited to prescription drugs. With burgeoning inflation lifting the costs of everything, it would be easy for politicians basking in their "success" at setting drug prices to move on to broader price-controls in a 1970s redux.
By Phil Kerpen
Over the past two decades, Congress has repeatedly softened the blow of the federal estate tax by increasing the exemption amount – from $600,000 in 2000 to just under $12 million now. It still hits the largest, most successful family businesses hard, and most people think taxing death is wrong regardless of the exemption level. Nonetheless, President Trump called the higher exemption "virtual repeal," because for most Americans the tax is no longer a direct concern.
President Biden has other ideas; at the heart of his budget is a new, second “double” death tax with an effective rate of 43.4% on the appreciated value of assets held by an owner following their death. This new double death tax is in addition to, not instead of, the estate tax. And with only a proposed $1 million exemption, it would hit all income levels as vast numbers of small businesses, family enterprises and farms may be hold assets (land, buildings, machinery, etc.), but are often cash poor or even in debt.
A new study conducted for the Committee to Unleash Prosperity by the economic modeling firm REMI finds the economic consequences of this double death tax would be devastating. The study found -- with very conventional assumptions -- that the Biden proposal to impose capital gains tax at death and hike the rate to over 40% would destroy well over 900,000 jobs and cost the average household about $10,000 in lost income.
California stands to lose 125,000 jobs, New York 50,000, Pennsylvania 33,000, Georgia 30,000, Colorado 25,000, and Arizona 20,000. Even West Virginia, a small and relatively poor state, would shed 4,000 jobs with the new “double” death tax. Montana, 4,000 jobs. The list goes on.
That's probably part of why its former longtime Democratic senator and former Senate Finance Committee Chairman Max Baucus (D-MT) recently came out swinging against the tax, writing the tax "would force family businesses and ranchers to liquidate when an owner dies and to lay off employees while bringing in little revenue for Uncle Sam. Lawmakers should know this is a mistake… Proponents try to temper criticism by suggesting carve-outs, but we’ve learned from experience that they are ineffective."
And former House Agriculture Chairman Collin Peterson (D-MN) went even further calling it “the worst idea that has been proposed in terms of its impact on agriculture in my lifetime.”
Meanwhile, Main Street USA remains utterly confused as to why the Biden Administration and Congress seem so intent on now hammering family businesses, those most challenged as they try and emerge from the COVID-19 lockdowns, with massive, even crippling, new asset transfer taxes. They are also putting the livelihoods of those that work for or do business with family businesses, and their communities, in jeopardy.
Sadly, all this has very little to do with tax policy. It is about finding “pay fors,” or new government revenues, to cover the cost of Biden's massive new spending programs.
The scorekeepers at the Congress’s Joint...
Photo Credit: Andreas Klinke Johannsen