Health Care: Taxing That Fella Behind the Tree, Again
The House leadership seems convinced that a relative handful of people should pay for health reform. In the plan released yesterday by Speaker Nancy Pelosi, Democrats would fund most of the cost of insuring millions more people in two ways: cutting subsidies to Medicare Advantage plans and imposing a stiff 5.4 percent surtax on individuals making $500,000 and couples making more than $1 million.
TPC figures that just 400,000 taxpayers will pay that increase in 2011, less than three-tenths of one percent of all taxpayers. However, because the millionaire’s surtax is not adjusted for inflation (at least not yet), within a decade many more are scheduled to fall victim to the tax hike. By 2019, TPC figures nearly 800,000 would be in the bulls-eye, although that is still fewer than 1 percent of all taxpayers. Over the decade, the surtax is projected to raise nearly a half-trillion dollars. But because income subject to the surtax does not increase with inflation, annual tax revenues would grow from about $30 billion in 2011 to $70 billion in 2019
I am bothered by two elements of this. First, do we really want to put most of the cost of a national priority such as health care on the backs of a relatively few people? My concern has more to do with our social compact than economics, but wouldn’t it make more sense if we all had a horse in this race? I know, those hit by the surtax are the same people who benefitted most from the Bush tax cuts in 2001 and 2003. But there is still something wrong with pretending that health reform is a free lunch for 99.7 percent of us.
And I have another problem. My guess is the levy would become another Alternative Minimum Tax deal. That is, despite what looks like surtax-creep, there is a pretty good chance Congress would get cold feet somewhere along the way and protect many of those who would otherwise face the extra tax over the next decade. This would add tens of billions more to the deficit.
I can hear lawmakers now. “This tax was never intended to hit these hard-working Americans earning just $500,000,” some pol will thunder in the run up to the 2014 elections. And on some level, I fear, that will be quite right.
By the conventions of budget scoring, of course, it doesn’t matter if many never pay the tax. The scorekeepers (JCT in this case) must assume the law will apply for 10 years. So, if this provision survives the next few months of congressional debate, Congress will be able to give itself credit for paying for health reform, never mind that would do so in a way that is irresponsible and very likely phony.
Thanks to this blog I finally managed to find the information matching my criteria and for this I would like to thank the author for sharing this blog with us. Looking forward for more.
I think the post is good for us.s and CPAs will soon figure out creative tax shelters to shield their wealthy clients from this tax.
The surtax is a good idea for deficit reduction and should be scored for that rather than for Goethe care. I agree a more general levy, in the form of an expanded business income tax or employer payroll tax, should be used – especially if this were paired with the deduction for providing health insurance. Then the tax increase would simply make employer provided health care more attractive for those employers who do not offer it now.
In my opinion, US should learn from Canada´s health care system, which is much better. Irena from web hosting reviews
So now that the health insurance reform bill has passed the clock can start ticking on economic implosion.
It’s quite evident that most Americans want some sort of healthcare reform, but at the same time most people don't want the bill devised by the Democrats. The price tag seems quite unrealistic and we know it’s going to skyrocket within next few years and the only real solution coming from the leadership is to raise more taxes. What we need is greater majority and truly bipartisan bill, which addresses the core issue of raising healthcare costs, expensive legal & insurance costs that doctors face and other factors that keep pushing the prices higher. Truly bipartisan bill and compromise is the only answer that can translate into viable and long-term healthcare bill that Americans deserve.
I work in the health insurance business and I don't like all the taxing that is being done right now. As it is, paid health insurance may be in jeopardy.cheap health insurance
Yes, the perception is that health-care reform is being paid for by the rich, but in the big picture this is just an increase in the top tax bracket. (As you know, dollars are fungible–my father always insisted on giving his donations to “the janitor's fund.”)
Since earners above $55K are currently not taxed progressively, this additional tax on the wealthy serves to slightly ameliorate a situation that is neither fair nor efficient.
Energy | Phone
A good read, definitely worth a cut and paste. Thanks!
health cover
Oh and yes, absolutely, the darned thing should be indexed for inflation. (Even better, just raise the top tax bracket.)
Steve
http://asymptosis.com
Mr. Gleckman, I understand your philosophical point about a broadly based tax system, but the fact of the matter is that when federal, state, and local taxes are included, the American tax system above about $55K in income is essentially non-progressive.
Yes, the perception is that health-care reform is being paid for by the rich, but in the big picture this is just an increase in the top tax bracket. (As you know, dollars are fungible–my father always insisted on giving his donations to “the janitor's fund.”)
Since earners above $55K are currently not taxed progressively, this additional tax on the wealthy serves to slightly ameliorate a situation that is neither fair nor efficient.
Steve
http://asymptosis.com
>“This tax was never intended to hit these hard-working Americans earning just $500,000,”
This is exactly what's wrong with Ryan's plan and with every other plan to gradually and automatically cut benefits and increase taxes by fiddling with the indexing formula. These plans do not account for the inevitable political push-back when voters are squeezed. The clever formulas will never survive long enough to have the intended effect. Unless the initial intent was to pretend to control the budget without actually doing so!
The surtax is a good idea for deficit reduction and should be scored for that rather than for health care. I agree a more general levy, in the form of an expanded business income tax or employer payroll tax, should be used – especially if this were paired with the deduction for providing health insurance. Then the tax increase would simply make employer provided health care more attractive for those employers who do not offer it now.
Nice piece. The other problem with the surtax is one you pointed out in a previous piece: The lawyers and CPAs will soon figure out creative tax shelters to shield their wealthy clients from this tax.
Taxing Cadillac health insurance plans makes a lot more sense.
Steve Goldberg