The Lucid Line

George Bush campaigned in 1988 on a promise of "Read my lips: No new taxes." Of course, then reality set in and Bush raised taxes anyway, for which the Republican base crucified his reelection bid, casting around 19% of the vote to alternative conservative choice Ross Perot and allowing Bill Clinton to sneak into the White House with just 43% of the vote.

Barack Obama also promised in 2008 not to raise taxes on those earning under $250,000. Then came the Baucus healthcare bill, and, just as it did for Bush, reality set in.

Let's face it: I've not read this 1500-plus page health reform bill, I don't plan to and neither do you. Still, some very smart economists have dissected the plan, and what they're saying is that it will fail to change much in health insurance. From what those economists say, this bill is less than acceptable for lefties and righties (and all those in between) alike, because it fails to deliver on Obama's promise of a healthcare miracle, and breaks another one of his promises: That whole "no new middle class taxes" nonsense.

The first problem with this bill is it does almost nothing to solve the problems in our healthcare system, an effect, perhaps, of the bill writer's misunderstanding of those problems.

Most of those in favor of government solutions to healthcare believe the health insurance market is plagued by a problem called "adverse selection": a problem resulting from insurer's lack of knowledge of their patient's health (and, thereby, relative risk) which results in everyone in the market being charged the same, overly high price to cover the unknown risk.

Many economists are skeptical of the relevance of this particular market failure to health insurance markets, but for argument's sake, let's assume it works.

Trouble is, those government officials currently pushing reform don't seem to understand this problem, which throws a bit of a wrench into their ideas for fixing a system supposedly plagued by it.

Obama's own team of economic advisers issued a 56-page "Economic Case for Health Care Reform" report last June that spent some space on this supposedly central problem, but indicated that, instead of the typical adverse selection story where everyone is charged high prices because of lack of information, "most insurers use medical underwriting and incorporate a risk premium into the actual price of coverage."

As economist-blogger David Henderson correctly noted, this statement basically says that Obama's team asserts that the lack of information causing adverse selection is a problem, but that, also, no such lack of information exists, because insurers search for that information, find it and incorporate it into their premiums.

Obama's team, in contradicting itself concerning what it views is the central problem in healthcare markets, is thus admitting that that problem, in reality, is not the problem. Still, he seems intent on fixing it.

Obama is no fool. He knows very well that if adverse selection in the healthcare market were indeed the main cause of rising costs, then the mandate included in the Baucus bill would do most of the work in assuaging those costs.

But Obama doesn't seem to believe that story, and neither does Max Baucus, which brings us to the other major problem with this bill: the taxes it levies on the middle class.

Baucus' bill includes in its text a 40 percent tax on what have been termed "Cadillac plans" – insurance plans with fairly high values and benefits – to pay for what look like continually rising healthcare costs.

Of course, this tax falls on the insurance companies directly, but they will inevitably pass at least part of that tax onto consumers, in effect making it a tax on American consumers as well, and not just on insurance companies.

According to the American Enterprise Institute, of the tax's $50 billion in projected revenues, 87 percent would come from individuals with incomes under $200,000, breaking Obama's campaign promise to not raise taxes on the middle class.

Barack Obama's campaign website stated quite explicitly: "Middle class families will see their taxes cut – and no family making less than $250,000 will see their taxes increase." So much for that promise.

The Baucus bill won't lower costs, and Obama and Baucus both know it. So instead of relying on economic logic they know doesn't quite mesh with reality, Baucus and Obama are hedging their bets by including a sizable tax in their reform bill, just to make sure they can afford it.