One thing moral theologians might contribute to our political discourse is pushing it to address problems in less simplistic ways. Much coverage has been devoted to the “fiscal cliff” set up for next year by the expiration of the Bush tax cuts and the automatic spending cuts required by the debt ceiling “deal.” President Obama has already decided to press for extending the tax cuts… but only for those making less than $250,000. Republicans, of course, want to extend them all.
This is a tiresome debate that ignores more substantial problems. I want to suggest two concerns that might rightly be raised by moral theologians interested in fiscal sanity: the compensation of doctors and the tax deduction for mortgage interest. These are not “silver bullets” – what I hope they prompt are other, similar suggestions of identifying key problems in the present system that could be modified for the common good.
American physicians, especially primary care physicians, make considerably more money than their counterparts in other developed countries. Average compensation estimates begin at over $150,000, and rise substantially for specialists and surgeons. One problem identified by many is our fee-for-service system, in which doctors benefit from simply by offering more, and not necessarily effective, treatment. And this is certainly a problem. But could it be that doctors simply earn too much money? One simple way to cut medical costs, which are strangling the economy and the federal budget, would be to figure out ways for physician compensation to decrease. While I would be the first in line to criticize the high salaries of CEO’s and of many in the finance sector, the fact is that doctors make up a significant portion of these top earners, and of those in the next 10%.
There are two common responses to this claim. One, which is indisputable, is the malpractice insurance burden carried by doctors. I do not know if the figures above are affected by this expense, but this is certainly a problem. The other response is to point to medical school debt. More than 80% of medical school graduates carry debt, with the average load currently at $158,000. The debt problem creates a vicious cycle, since doctors starting out turn out to be the ones most justified in drawing a high salary. On the other hand, such a complaint would be more palatable if this debt load actually meant that doctors were living lifestyles like those of small-college professors (!!), which it seems many are not. It would be quite rational to figure out a system whereby medical school costs could be reduced in exchange for some kind of reduction in doctor compensation – a difficult task in the market system we currently have, but there would be ways to do it.
A second issue to raise would be the largest (besides medical insurance) “tax expenditure” in the current tax code, the deduction of mortgage interest payments. There are periodic attempts to raise this issue, but it has become something of a “sacred cow,” because of its widespread use. However, it is a really terrible tax expenditure, for many reasons, reasons that both liberals and conservatives should both endorse. First, in its present form, it constitutes an extraordinary income transfer from the poor to the wealthy. Because the deduction is capped so high ($1 million), and can be applied to multiple homes, the beneficiaries are disproportionately wealthy – and they even benefit further because the deduction applies to their higher marginal tax rates. Overall, the expenditure costs around $130 billion a year – to put this number in perspective, the primary income transfers to the poor (EITC and TANF) combined cost $79 billion (2008).
But secondly, it also distorts market forces significantly. Because of preferential tax treatment, it directs investments toward real estate assets, rather than other productive uses. And its effect (as any prospective homeowner know) is basically as a price subsidy – even with historically low mortgage interest rates, the deduction in effect allows me to receive a $200 a month “rebate” of any house payment I would make, thus making a $1200 house payment “equivalent” to a $1000 rent payment. But, as any economist will tell you, a universal price subsidy simply increases cost. Without the price subsidy, housing prices would drop, and I would essentially be no worse off – or (even better) I would be incentivized to save more for a down payment or simply “downshift” to a simpler residence.
I don’t want to make light of this deduction – I have many people I know for whom such a deduction is likely crucial in making a household budget. Therefore, most proposals do not eliminate it, but reduce it. For example, the Simpson-Bowles balanced budget proposal changes the deduction to a flat 15% refundable credit (with a lower cap). This proposal in effect makes the deduction less regressive, by hitting the “benefits” of wealthy taxpayers the most. At least this would a step toward its elimination, since it is very unclear that the deduction actually provides much social benefit overall (Canada has similar rates of homeownership, for example).
Both of these cases, it seems to me, are very much about luxury. They seek to identify excessive costs – costs that it would be difficult to justify on any grounds of necessity – and work toward reducing them. In theory, at least, they should appeal to ideological concerns of both liberals and conservatives. Of course, they also will challenge other aspects of this concern – it is generally easier for liberals to vilify profit-seeking insurance companies, as well as ignore tax preferences that seriously subsidize the upper-middle classes, and it is generally distasteful for conservatives to suggest that one’s home or one’s salary might be “excessive” rather than “something you’ve earned.” However, both issues really call for more efficient markets, with lower costs (hooray, say conservatives), and controls on fundamentally regressive expenditures that funnel money (public and private) from those who are poorer to those who already have enough (hooray, say liberals). Ultimately, they both ask us to propose to people that they could get by with less.
So, what prevents us from raising issues such as these? And trust me, I know there are a number of similar kinds of issues that could and should be raised. But these are big, numbers-wise. And I think they are also important because they are not really of the form of “the poor vs. the 1%.” They recognize that prudent economic decisions in the present environment require broader attention to unsustainable aspects of the present system, where the consequences fall more broadly. Of course, they are tricky issues – I do not mean to criticize the skill of doctors, or their importance, nor do I mean to reject the goods of homeownership, particularly for families. But it is a great problem in politics for us to believe that we can identify some alleged “enemy group” on whom we can pile blame. Let’s try to get beyond that problem, and implicate ourselves a bit more in the problems. What other kinds of solutions might be helpful, but lost amidst the usual simplications?