"Public opinion" is not what you think By Scott Sumner

Many people anthropomorphize the public, and talk about “the public” having an opinion, just as you or I might have an opinion. I view this as a big mistake.

Elsewhere I have argued that polls on policy questions are very misleading, and the results heavily depend on framing effects. Here I’d like to discuss another problem with so-called “public opinion”.

Suppose you agree with me that the tax deductibility of health insurance is a huge distortion, which causes excess spending on health care. But polling experts tell you that the public likes the deduction, and hence nothing can be done about it. Should we believe them?

It would certainly be politically difficult, if not impossible, to immediately repeal the tax deduction for health insurance. But suppose Congress passed a law capping the amount that could be deducted. They did not do that, but they did pass the so-called “Cadillac tax”, which has much the same effect. They also indexed the threshold to inflation, which is generally less than the rate of growth in health expenses. So the cap will gradually become more effective over time. (Unless it is repealed, which is possible.)

Now suppose that several decades from now a majority of insurance plans are up against the Cadillac tax threshold. At that point Congress replaces the tax deductibility of health insurance with a fixed tax credit for anyone with health insurance, equal to the average tax savings of the current system. In that case, the marginal cost of health insurance would rise sharply, considerably reducing the distortions in the health care system. But the public would still have their tax benefit.

I’m not saying this is going to happen, but it would certainly be far more politically feasible than simply repealing the tax deduction for health insurance.

News out of the UK provides an almost perfect example of the problem with public opinion. The Conservatives proposed eliminating a cap on how much any family was required to pay for nursing home care.

Launching her manifesto last week, Ms May said the Conservatives would ditch a planned overhaul of the social care system adopted by her predecessor David Cameron, which included putting a £72,000 cap on social care costs for any individual. Under current rules, only the poorest people get state help towards their costs. Those with assets over £23,250 have to pay the full costs of care although for people being cared for at home this figure did not include the value of their house. Mrs May’s original plan sought to dispense with the cap and instead protect up to £100,000 in assets for those having to pay their full care costs. Andrew Dilnot, author of the Cameron government’s social care reforms, said last week he was hugely disappointed by Mrs May’s proposals. He said it would leave people “helpless” until they were down to their last £100,000.

The populist press immediately began complaining about a “dementia tax” and indeed in a sense it would be a 100% tax on savings above that cap, for families with a loved one who needed social care. The firestorm of criticism forced the Conservatives to do a U-turn on this proposal, abandoning it despite a big lead in the polls (the election is just weeks away.)

Here’s what I found interesting about this event. It seems to me that the Conservative Party’s proposal would have also faced a firestorm of criticism in the US, if it were not already the law of the land. But unless I’m mistaken, the “dementia tax” proposal that was rejected by the British public is already the way nursing home care is handled in the US.

Now you might argue that the UK is different; they have the NHS and we don’t. But their single payer system does not cover all nursing home care. I see this as a case of status quo bias. There are many aspects of our economic system that would never even be enacted here, if they were not already in place.

The art of politics is sort of like the art of boiling a frog. The key is to introduce sensible reforms so gradually that the public doesn’t even know what hit them. Then a few decades later the public wakes up in an entirely different world.

This might sound undemocratic, and it would be if there were such a thing as “public opinion.” But there isn’t. If the reforms are enacted by democratically elected politicians, then they are democratic reforms.

The Cadillac tax is a dagger aimed at the heart of the medical industrial complex. The proposed elimination of the tax deductibility of state and local taxes is a dagger aimed at the heart of high tax (blue) states. These special interest groups are far too powerful to attack directly, and perhaps even these indirect attacks will fail. But they are probably our only hope for success.