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An Inside Look at the Senate Finance Committee's Revenue Options

Earlier this afternoon, a Senate source let me look at the revenue options being considered by the Finance Committee. Some of them look pretty good. Some of them seem pretty small. And some seem downright strange.

There are three basic categories of revenue under consideration. The first, and largest, is "health." These are all ways of raising revenue within the health-care system. And they suggest that though a cap on the employer health-tax exclusion isn't being considered as the main funding source for health reform, it's not entirely off the table. One of the options is a cap at FEHBP + 30 percent, which means that the exclusion would cut off on plans that are 30 percent more expensive than the standard plan offered in the Federal Employee Health Benefits Program. This would raise $234 billion over 10 years. Another option is to cap at FEHBP + 60 percent, which would raise $90 billion over 10 years.

The biggest-ticket item under consideration on the health side is an increase of 0.3 percent on the employer and employee Medicare tax. That would raise $275 billion over 10 years. Another option would be to apply the Medicare tax to investment income above the Social Security tax cap. (That seems like a really good idea.) There's also a potential flat tax on insurance companies tied to their number of members or premium payments. That could bring in $75 billion to $100 billion over 10 years. Then there are a couple much smaller revenue options relating to fees on pharmaceutical companies and the medical itemized deduction cap.

The next category is "consumption." The big-ticket item here is a 5 percent value-added tax that exempts food, housing, and medical care. That would raise a trillion over 10 years. It's also a pretty strange idea: If the American people don't want a tax on medical benefits that would fall on only a small portion of the population, are they really going to embrace a national sales tax of 5 percent? Other options in this category include a 10-cent-per-ounce tax on sugar sodas that would raise $105 billion over 10 years, a three-cent-per-ounce tax on sugar soda that would raise $33 billion over 10 years, and a 14-cent-per-ounce tax on beer that would raise $40 billion over 10 years.

The final category is, simply enough, "income taxes." A 2 to 5 percent tax on high incomes -- I don't have the definition of high incomes -- would raise $300 billion to $500 billion. A "millionaires" tax would raise $350 billion. Limiting itemized deductions to 28 percent starting in 2013 (presumably to let the recession close out?) would bring in $267 billion, and 35 percent would bring in $90 billion over 10 years.

There's not a whole lot of analysis to be done on this list of options. I imagine the VAT proposal is pretty unlikely. Most of the rest seem like serious, thoughtful efforts to raise revenue. It's not clear, however, that they'll be any more popular than a more aggressive cap on the employer tax exclusion. And it's a little disconcerting to be this far into the health-care reform process and still be staring at the whiteboard on how to pay for it.

By Ezra Klein  |  July 9, 2009; 3:52 PM ET
Categories:  Health Reform  
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Comments

I have an idea to throw into the mix. Reduce the exemption on the estate tax such that inheritances are taxed as ordinary income.

I was never clear on why people who work for their money have to pay taxes, but people who inherit it don't. Because the person who died already paid taxes on that money? True. And my customers already paid taxes on the money I earn. The double-taxation nonsense is exactly that, and it's time that people understood that giving tax breaks to the lucky few mean higher taxes for the rest of us.

Posted by: cjo30080 | July 9, 2009 4:13 PM | Report abuse

Increasing the cost of employment via an increase in the payroll tax during a recession would be really stupid. What do you think that would do to the unemployment rate? That would be even more stupid than the impending increase in the minimum wage. Why would anyone conclude that increasing the cost of employment is ever good for the economy?

I think they should tweek the tax incentives to separate health insurance from employment and expand the tax preference to individually purchased plans. That would immediately make individual plans cheaper and thus expand the ranks of the insured. They need to stop focusing on these overcomplicated, nonsensical, centralized options. There are some simple ways they can make health insurance cheaper. Why don't they?

Posted by: fallsmeadjc | July 9, 2009 4:13 PM | Report abuse

They don't need more money. What they need is more competence? Maybe we should impose a competence tax and force competent people to devote a portion of their competence to the almighty good of public service.

Posted by: fallsmeadjc | July 9, 2009 4:18 PM | Report abuse

baucus certainly has not delivered

his charge - finance health reform

he has spent a lot of time and made alot of noise and it looks like he will not be delivering much in the way of ideas

Posted by: jamesoneill | July 9, 2009 4:25 PM | Report abuse

cjo - It's much worse than you think. 80% of the money in estates that pay any estate tax is investment income on which no tax has ever been paid, and if it is inherited, no tax other than estate tax will ever be paid.

Posted by: lensch | July 9, 2009 4:32 PM | Report abuse

hmmm, .14 an ounce per beer, x 12 oz/beer x 6 beers in a sixpack = $10.08 plus the cost of the beer, so Obamaland gets us the $16.00 sixpack. Change you can believe in!

Posted by: sgaliger | July 9, 2009 4:36 PM | Report abuse

BTW, first you go after Joe the Plumber and now go after Joe Six-pack. You lefties really don't like Joe's, do you? Not to mention Joe Camel . . . which, now that I think of it, are those Obama's favorite smoke?

Posted by: sgaliger | July 9, 2009 4:39 PM | Report abuse

Are those consumption taxes right? Wouldn't a 10-cent-per-ounce tax on soda work out to $1.20 for a can of Coke? That seems bizarrely high to me.

Posted by: zshoup | July 9, 2009 4:40 PM | Report abuse

I hear you lensch. And any taxes they did pay on any investment income realized before they died was, in all likelihood, substantially less than any taxes we (or our customers) paid on our earned income.

When you combine capital gains tax rates, estate tax rates, and payroll tax caps, it's quite a scam that the well-connected have going at our expense.

Posted by: cjo30080 | July 9, 2009 4:41 PM | Report abuse

Seriously... those numbers can't be right. $1.20 in tax for a coke?!

Posted by: spotatl | July 9, 2009 4:47 PM | Report abuse

What about a financial transactions tax or a "Tobin tax" on currency speculation, which Dean Baker has written about? Churning your account, after all, can be as big a vice as smoke or drink;)

http://tpmcafe.talkingpointsmemo.com/2008/09/16/medicine_for_wall_street_a_fin/

http://tpmcafe.talkingpointsmemo.com/2009/06/28/greg_mankiw_argues_for_a_financial_transactions_ta/index.php

http://en.wikipedia.org/wiki/Tobin_tax

Posted by: roublen | July 9, 2009 5:17 PM | Report abuse

Reckon what would happen if you just eliminated the Social Security tax cap altogether? It is the single most regressive tax we have. That could solve both retirement problems as well as going a long way toward solving health care.

Posted by: pj_camp | July 9, 2009 5:37 PM | Report abuse

Ezra, I got to argue with your " If the American people don't want a tax on medical benefits that would fall on only a small portion of the population"

my understanding is the benefit tax as Baucus had it written would hit something like 80 million. That is not a small portion. I remember reading Dodd found that half of all insurance plans in CT are over FEHB plus 10%

Posted by: JonWa | July 9, 2009 5:38 PM | Report abuse

The best reason to apply the Medicare tax to investment income beyond the social security cap is that some years it wouldn't amount to much! How's that for a cost-control measure?

I hesitate to increase Medicare taxes because Medicare already appears to be spending like a drunken sailor. No need to add fuel to that fire.

I'm OK with a benefits beyond an average tax or an income tax -- if it falls on everyone. I'm not ready to pay for 42 million people all by myself. Like Walmart I believe that everybody needs to pay towards this national goal.

Posted by: RedBird27 | July 9, 2009 7:47 PM | Report abuse

I presume the taxes on soda and beer are being formulated as taxes per ounce of sugar or ounce of alcohol. Otherwise, as other commenters have pointed out, the numbers don't make much sense.

Posted by: Mike_Russo | July 9, 2009 8:13 PM | Report abuse

Why is it disconcerting that we are still looking at funding part so late in the game? We will be looking at till the last minute, that is the nature of the beast. What is sad is there is much less rigor behind these options considered by Senators. Anyways, let me get off my usual rant against Senators and get to the point:


1. Health Care Reform must be funded by revenue sources within the health system itself for the simple reason that we cannot afford to dry revenue streams outside the health system. In themselves those outside the health system revenue streams are going to fall short to finance the general deficit which is gnawing us. How in the world we are going to finance stimulus package deficits and bank bail out deficits and many more borrowing on the way? Those deficits need sources and hence health system reform funding must be strangled within it's own domain only.

2. Given that then many of the funding ideas are not workable. Next within the health care system also no explicit tax increase like 0.3% for Mediacare or so on. That is not acceptable for the simple reason that for individuals benefits are not going to increase by 0.3%; rather the goal is to ration what is available under Medicare.

3. Congress better pursue the idea of taxing health benefits beyond FEHBP level. Ignore Harry. When did he ever show any political courage? The guy falls first always. With these Union Labor - what do you want? Do you want to ruin the entire country for these unionized labor? Are not bailouts of GM and Chrysler sufficient? Or do we still want to damage American Economy further by pandering to thuggery of Labor?


Posted by: umesh409 | July 10, 2009 12:53 AM | Report abuse

I'm late to the thread, but here are my suggestions: 1.) Devote 35% of the presidential campaign fund to fund the public option; 2.) withhold a percentage of an individual's tax REFUND, based on the amount they are getting back; 3.) impose a federal tax on internet commerce; 4.)impose a windfall tax on gun MANUFACTURERS (not sellers). Most of these suggestions are out-of-the-box -- and probably off-the-wall -- but we've got to get creative here, people.

Posted by: green_richardhotmailcom | July 10, 2009 2:59 PM | Report abuse

There is enough money in the financial side of health care already. Are American's really so needy or so sick that they need to spend MORE than twice as much on health care as the rest of the world.
HR 676 finances universal, single payer health care with NO increase in funding. It does get rid of the multiple payers we have now otherwise known as 'insurance'. Read the Rockefeller Report if you need motivation to get rid of them. We can have many many ways of earning profit in the U>S>. I am convinced we don't have to do it on the backs of sick people.

Posted by: cheinz | July 11, 2009 8:26 AM | Report abuse

I agree with your final comments.

What the hell has Baucas been doing for the last six months ????????????

It's the middle of July and he is just now getting ideas together ... WTH

Posted by: cautious | July 12, 2009 8:08 AM | Report abuse

"... and a 14-cent-per-ounce tax on beer that would raise $40 billion over 10 years."

12 oz X 24 cans X $.14 = $40.00

A case of Bud only cost $20 bucks?

.. are they insane?

Posted by: cautious | July 12, 2009 8:12 AM | Report abuse

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