A SIMPLE AND HONEST WAY TO PAY FOR HEALTHCARE REFORMS

Democrats and the Administration are test-flying all sorts of behind the scenes tax increases to pay for healthcare reforms. Or else they claim that proposed Medicare savings will pay for expanding coverage to uninsured people and increasing patient rights on existing health insurance policies. After 30 years of bipartisan tax cuts and bipartisan spending increases, I don’t take either party seriously with respect to paying for any governmental programs.

To be fair, our politicians have been pandering to the majority of Americans who are completely delusional and childish when it comes to paying for things they want and need. This buy-now, pay-later financial mantra extended to our homes, electronics, existing employer-provided health insurance, making war, and to all our necessary and popular governmental programs. We have lived a 30-year fantasy that someone else will pay our bills and the events of the past 2 years have started to pull that fraudulent veil off our eyes. Yet most Americans are still in denial and hope that some “magic pixie dust” will eliminate our massive Federal and private-sector debts.

After the House and Senate wrangle out two separate healthcare bills from their members, they will have to go to a joint conference committee to iron out differences so they can pass one set of identical pieces of legislation that can be submitted to the President. The power to influence the final legislation rests with Senate Majority Harry Reid and House Speaker Nancy Pelosi because they appoint the members of the joint committee. Administration officials will also be present and play a key role in drafting the final legislation.

If the sausage-making legislative process has left many Americans with a bitter taste, just wait for the ugly compromises that will be part of a final bill passed before the year-end Holidays. I fear it may look like the ugliest, gaudiest, decorated Christmas tree totally funded by our nation’s no-limit credit card. One thing for sure, if there are any new taxes to pay for some of it, they will be so complex and surreptitious to make any John le Carre’ fan smile with pleasure.

Too many interest groups agree that someone has to pay more taxes but it’s not going to be them. “Don’t tax you, don’t tax me, tax that fellow behind that tree” has been the familiar song and dance refrain of Federal and State legislators for more than half a century. There exists a straightforward tax that hits everyone with earned income in the U.S. It is one that cannot be escaped since it applies on a flat-rate percentage basis. It is the 1.45% Medicare payroll tax, which is another type of universal income tax. Employers pay a matching 1.45% on their total payrolls, and self-employed individuals must pay a total tax of 2.9% for this Medicare tax.

Some progressives and liberals decry that this existing tax is not progressive. However the many strange proposed taxes on high-end health insurance policies, special fees on private insurance policies, and new excise taxes on various types of foods and beverages, are not progressive either under any objective analysis. Furthermore this flat payroll tax equitably hits all employers of every size, whether they have subsidized employee health insurance plans or not.

Addressing U.S. income inequality should be accomplished by separately modifying our progressive income tax rates and the various credits, exclusions, deductions, and separate tax rates for different types of investment income that are part of our huge and complex tax code. Issues of overall tax progressivity should not be dragged into the unrelated and sufficiently complex debate over healthcare reform.

A person earning $25,000 a year, currently pays $6.92 a week into the Medicare/payroll income tax. Another person earning $250,000 a year pays $69.20 every week. And a third individual earning $2.5 million annually pays $692.00 every week into the same tax. Assuming all these individuals are employed, their employers would kick in another 1.45% in matching payroll taxes.

Over the next 3 years, we should simply raise this 1.45% tax to 2% to both employees and employers, and self-employed people would be taxed at 4% total combined rate. This total 38% increase (or approximately 13% per year) in this small flat tax would result in seeing the median U.S. household (making $50,000 a year) eventually paying just $19.23 out of pocket each week – a very modest increase of $5.29 over the current weekly Medicare payment of $13.94.

The total annual Medicare tax towards healthcare reform by the person earning $25,000 a year would go up $137.50 to $500 a year. The other two example taxpayers would see increases in their same payroll taxes either tenfold or one-hundred fold. Again all U.S. employers would also have identical increases in their associated payroll taxes.

If the Medicare tax on employees and employers now raises about $150 billion a year for the Federal Government, raising it by 38% over 3 years to a rate of 2% on all earned income will likely increase total annual receipts by $57 billion. This amount would completely pay for all proposed reforms and expansions of coverages thereby making healthcare reform policies deficit-neutral, and possibly reducing the projected annual federal deficits. At least some of the additional revenues could assist states in funding their required Medicaid contributions.

This modest, flat, simple, unavoidable, and easy-to-collect federal revenue source would effectively have the wealthy pay more than the poor for healthcare reform. As with any type of workable nationwide universal healthcare insurance, everyone must participate and pay for the total system in order for it to work effectively for our entire society.

Submitted on 10/27/09 by Marc Pascal in Phoenix, AZ, who currently prefers just straight-forward expansions of Medicare and Medicaid coverage and forgetting about any complex triggered or opt-out “Rube Goldberg” public option proposals.