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The Case for Funding Health-Care Reform With a Surtax on the Wealthy

"There is no case to be made for the House Democratic majority's proposal to fund health-care legislation through an ad hoc income tax surcharge for top-earning households," writes The Washington Post's editorial page.

It's a bit of a baffling statement. The case goes like this: According to The Washington Post's own polls, paying for health-care reform with a small tax on the rich is a popular way to pay for health-care reform. Meanwhile, Republicans seem unlikely to seriously consider a bipartisan deal on health-care reform, and are instead searching for vulnerabilities with which to destroy the health-care reform effort. One of those vulnerabilities could be a method of funding health-care reform that is unpopular with voters and breaks Barack Obama's pledge to lower taxes for families making less than $250,000 a year. As such, Democrats are increasingly interested in a popular method of raising revenue that does not break any of Obama's campaign promises.

On the policy merits, I agree with the editorial board that it would be preferable to eliminate the employer tax exclusion and rebuild the system in a more progressive fashion. But I've not seen any argument, and they've not provided any argument, suggesting that such a thing is politically possible at this juncture.

So the question actually becomes whether there's a case for the surtax given the necessity of passing health-care reform, the difficulty of corralling the votes, and the need to fund the bill in a way that the public is comfortable with. I can see an argument for and against the surtax on those grounds, but it's certainly not cut-and-dry. And so much as I think the editorial board members gets something important right when they say that it is time to stop pretending that we can "build a larger, more progressive government while raising taxes on only the wealthiest," diminishing the stigma associated with taxes is a long-term project. Making its completion a pre-condition for health-care reform would be unwise.

By Ezra Klein  |  July 16, 2009; 10:30 AM ET
Categories:  Health Reform  
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Comments

Soaking the rich is always popular. But never moreso than shortly after we've all had the wonderful experience of being soaked by the rich ourselves. I don't think anyone is going to have a problem taking away a hedge fund manager's yacht money in order to pay for a poor child's cancer treatment--except maybe the hedge fund manager.

Posted by: bluegrass1 | July 16, 2009 11:02 AM | Report abuse

>...diminishing the stigma associated with taxes is a long-term project. Making its completion a pre-condition for health-care reform would be unwise.<

It's unwise if you actually want to create a fair, equitable health care system that doesn't let people die simply because they do not have adequate insurance or personal wealth.

If you really don't care about those things, or would prefer for your own reasons not to have such a system, it's eminently wise. It's another one of those great "now is not the time" arguments that can be trotted out endlessly, forever, under any imaginable circumstances.

Posted by: bcamarda2 | July 16, 2009 11:10 AM | Report abuse

As a frequent and often somewhat hostile commenter, I owe it to Ezra to weigh in when I agree with him. If we're going to do this reform, this doesn't seem like an unreasonable way of funding it. We're not in Laffer-curve territory anymore; the tax code can accommodate greater progressivity without diminishing returns.

Posted by: tomtildrum | July 16, 2009 11:24 AM | Report abuse

From the famously conservative tax policy center:

"But asking barely 1 percent of taxpayers to finance health reform largely on their own is not only bad tax policy, it is dreadful governance. It is only made worse by the form it would take: raising rates rather than closing loopholes."

Posted by: hoo93 | July 16, 2009 11:30 AM | Report abuse

"Soaking the rich" has also become more palatable because more people are waking up to the fact that it is the super-wealthy who own the engines of capitalism, who determine the wages paid to the majority of Americans -- and therefore determine how many of us are able to afford the insurance they offer and how many must go without. And as we all know, those who can afford the "insurance" sold by the super-wealthy often find it canceled or denied as soon as they try to use that insurance.

It is a lucrative system for those who own it, and those who feed off of it. They will fight to keep it, like the vampires they are, until they've bled America dry.

Posted by: methuselah1 | July 16, 2009 11:51 AM | Report abuse

"According to The Washington Post's own polls, paying for health-care reform with a small tax on the rich is a popular way to pay for health-care reform."

Taking from few to benefit many is always a popular position with the masses.

Posted by: BeatKing11 | July 16, 2009 12:12 PM | Report abuse

I looked over (including reading the biographies) the composition of the WaPo editorial board. With the exception of Fred Hiatt and Ruth Marcus - whose ideological right-leaning has been obvious to everyone who has their political interest light lit - it was difficult to find who on the board might have written this deeply dishonest screed on the health care surtax.

Even the US Supreme Court - the mightyist voice of authority in the country - has the common decency to sign their opinions in all but a insignificant number of 'per curium' opinions.

While newspapers are wringing their hands about their ability to survive as economic entities, they continue to act like their practices from a century ago or more are still relevent and appropriate. There isn't one person on that editorial board that raises the level of a public figure who has earned the respect of the public, yet we should accept their judgements (presumably collectively, but certainly in-fact not collective). Exactly why does this newspaper think we should follow the judgements of this hand-selected group of largely unknown people, hiding behind the 'editorial board' voice of authority?

So we find that today they think that surtaxes shouldn't be used, and they prefer pulling back tax preferences. Oh, and save the increases in taxes on high earners for the needed deficit reduction down the road. None of these is justified in the editorial, just stated. They do allow that taxes on the wealthy have decreased while the share of income to the wealthy has increased, and this is probably not a good thing. But, health care, one guesses, isn't important enough to begin that reversal in policy. It is a guess because it isn't stated. And it isn't stated because it is transparently sillyness (also known as dishonesty). There is no reason higher taxes on high-income earners can't be used again for worthy causes, including deficit reduction if needed. To say that the tax burden overall in states like NY would be higher is both to state the obvious and quietly make the argument that we really can't tax the incomes that GW Bush previously made untaxed with two rounds of tax cuts that cut far more than would be recaptured by the tax surtax proposed by the House of Representatives.

Posted by: JimPortlandOR | July 16, 2009 12:18 PM | Report abuse

I would make the case like this:

Since 2000, the adjusted gross income of the wealthiest 400 taxpayers has doubled, to $263.3M. At the same time, their effective federal tax rate decreased from around 22% to 17% of AGI. During the same time period median wages were essentially flat.

(http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a5DFqImg0c7M)

Since 2000 the income of “poorest” taxpayer in the top 1% of taxpayers increased from around $300,000 to around $380,000 – an increase of more than 20%. At the same time their effective federal tax rate (all taxes) decreased from 24% to 19%.

These taxpayers have reaped enormous benefits (increased income, increased share of total income, and a decreased tax burden) since 2000.

Reducing health care costs, reining in the growth of total health care spending as a portion of GDP, and providing health insurance options to uninsured and underinsured workers will make American companies more competitive globally. If we can gain some control over runaway healthcare spending, reduce the burden of paying for health care on American companies, and return to a growth economy, the top 1% of income earners stand to benefit disproportionately in the upside, and any temporary cost to them (in the form of a health care surtax) should be seen as an investment in their future earning potential.

Posted by: luko | July 16, 2009 12:28 PM | Report abuse

In our extremely wealthy country it's a disgrace that the poor are uninsured and middle class workers are routinely destroyed financially by our health care system. Health care should be a right ( http://www.whyweworry.com/blog/2009/07/16/choose-life/ ), and like bluegrass1 said, if it means one less Yacht for a hedge fund manager, so be it.

Posted by: ChrisWWW | July 16, 2009 12:58 PM | Report abuse

The surtax won't "soak the rich" like some here suggest. Rather it will come out of the pockets of those its intended to help. The additional tax burden will cost millions of jobs. As someone who will be affected, I can assure you I'll be making fewer charitable donations and hiring fewer painters, landscapers, cleaning people,etc. The health care reform tax will be "budget neutral" for me and my family.

Posted by: CapHillMike | July 16, 2009 2:14 PM | Report abuse

THIS IS IT!

The healthcare reform bill released by the House Of Representatives is an excellent bill as I understand it. It is carefully written, and thoughtfully constructed, informed, prudent and wise. This bill will save trillions of dollars, and millions of your lives.

This is the type of bill that all Americans can feel good about. And this is the type of bill that has the potential to dramatically improve the quality of healthcare for all Americans. Rich, middle class and poor a like. Democrats, Republicans, Independents, and all other party affiliations. This bill has the potential to dramatically improve the quality of life of every American.

The house healthcare bill should be viewed as the minimum GOLD STANDARD by which all other proposed healthcare legislation should be judged. All supporters of true high quality healthcare reform should now place all your support behind this healthcare reform bill released by the United States House Of Representatives, as the minimum Gold standard for healthcare reform in America.

You should all now support this bill with all your might, and all of your unrelenting tenacity. This healthcare bill is a VERY, VERY GOOD! bill for all of the American people. Fight tooth, and nail for every bit of this bill if you have too. Be aggressive, creative, and relentless for this bill.

AND FIGHT!! like your life and the lives of your loved ones depends on it. BECAUSE IT DOES!

SPREAD THE WORD

(http://www.youtube.com/watch?v=RSM8t_cLZgk&feature=player_embedded)

God Bless You

Jack Smith — Working Class

Posted by: JackSmith1 | July 16, 2009 3:20 PM | Report abuse

"As someone who will be affected, I can assure you I'll be making fewer charitable donations and hiring fewer painters, landscapers, cleaning people,etc."

Well, whoop-de-do, your lordship.

Posted by: pseudonymousinnc | July 16, 2009 7:44 PM | Report abuse

Ezra, you are not considering another argument why tax on rich is not acceptable to FUND Health Care Reform - simply because those revenue streams are needed to fund the general deficit which is astronomical due to recession. If you raise taxes for Health Care, it means for financing Stimulus and Bank Bailouts there are no resources. Add to that all the wars going on and many others potential wars which will come too.

Health Care Reforms must be funded within the system with a hard stop (non-Congressional control) on Medicare increase or any other health care expenses which otherwise can put a hole in national budget.

Posted by: umesh409 | July 16, 2009 7:47 PM | Report abuse

It is clear that severe tax increases have or will be taking place in the US on both state and federal level. It is also clear that tax increases have a multiplier effect on GDP contraction (one dollar tax increase will translate roughly into 3 dollars drop in GDP.) There is of course a delay before the tax shock translates into GDP contraction. It is entirely possible that with the temporary impact of stimulus, we may be looking at a prolonged "W" type recovery that is far more protracted than many currently estimate.

http://www.SoberLook.com

Posted by: SoberLOOK | July 17, 2009 1:41 AM | Report abuse

Have to laugh at CapHillMike. Yes, those poor benighted folks to whom you graciously provide employment (surely out of the goodness of your heart you pay higher than the prevailing wage?) might not have the privilege of working for you....but if they throw out their back working for some other, less vindictive, member of the elite they'll at least be able to get treatment...

Posted by: RonMexico2 | July 20, 2009 1:07 PM | Report abuse

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