And the government taketh away

The phrase “Only in America” once was used only as an expression of pride.

“Only in America” could an immigrant arrive with virtually nothing and end up creating the modern steel industry (Andrew Carnegie). “Only in America” could a student drop out of college and end up creating the world’s largest software company (Bill Gates).

But these days, “Only in America” can have a slightly different meaning. Our country isn’t merely the land of opportunity anymore. It may soon become the only country where a family can be rich and poor at the same time.

This summer, lawmakers have been considering whether to reauthorize the State Children’s Health Insurance Program (SCHIP), a federal program set up a decade ago to provide health coverage for poor children. It was a foregone conclusion that Congress would renew the program (maybe you’ve seen the TV commercials with singing children who attribute their good health to SCHIP). But many lawmakers want to go further, enrolling upper-middle class children in the “free” government-run health system.

Sens. Jay Rockefeller, West Virginia Democrat, and Olympia Snowe, Maine Republican, introduced a bill to extend SCHIP benefits to families earning as much as 400 percent of the federal poverty level in states such as New York. Thus, a family of four that earns more than $80,000 (hardly poor) would be eligible for SCHIP.

How is Uncle Sam to pay for this? According to the Senate Finance Committee, by boosting the federal tobacco tax 61 cents per pack. One problem: The only way the tax would raise the required $35 billion would be to get 22.4 million more folks puffing away over the next decade. Encouraging smoking — now there’s a sure way to improve children’s health.

But wait: Even as the government “gives” with one hand, another hand is poised to take back. Tens of thousands of middle-class families “poor” enough to qualify for SCHIP are also “rich” enough to be socked with the Alternative Minimum Tax, originally set up to catch wealthy taxpayers whose deductions left them with little or no tax liability. They must calculate their taxes twice, under two different sets of rules and pay the higher amount. But what was considered high income when the AMT was enacted is no longer so impressive.

More then 20 million taxpayers will be hit by the AMT this year, unless Congress fixes it again. And if SCHIP is expanded as Mr. Rockefeller and Mrs. Snowe intend, 70,000 of the 3 million who already pay the AMT also will be eligible for government-subsidized health care.

That’s ludicrous. It’s high time to fix both these programs. Lawmakers should eliminate the AMT. If that’s a bridge too far, they should at least enact a “hold harmless” provision to keep the tax from hitting more middle-class Americans.

As for SCHIP, Congress should reject all attempts to turn it into a new, middle-class entitlement. Lawmakers instead should limit federal aid to the truly needy and allow states to determine how most effectively to administer the program.

We Americans like to think of ourselves as entrepreneurs, and we believe the sky’s the limit. Some of us are poor, yet we all believe we can someday become rich. When Washington finds itself on the verge of making it possible to be both simultaneously, it’s time to figure out some way to be less schizophrenic.

Ed Feulner is president of the Heritage Foundation.