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Taxing rich people is popular

As Jonathan Chait notes this morning (and as Oregonians proved Tuesday), taxing rich people is a popular way to fund social services. Indeed, every poll on health-care reform has shown that taxing rich people is a lot more popular than taxing health-care benefits.

I think taxing health-care benefits is better policy (as it has potential to also control costs), so I've supported it. But if Democrats have to pare the bill back, they should scrap the excise tax. There's been no Republican cover for a policy that Republicans have traditionally supported (the Kerry team actually got the idea from one of the Republican alternative bills in 1994). Democrats made a substantive compromise that left their bill more vulnerable and got nothing in return for it. And now the effort is in trouble and they don't have the luxury of pursuing unpopular policies without Republican cover. If these are the new rules, Democrats should play by them, and if the bill passes, conservatives who would've liked to see more cost control should think very hard about where their strategy got them.

By Ezra Klein  |  January 27, 2010; 11:17 AM ET
 
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Comments

No. Kidding.

The excise tax is a Republican idea. If Republicans want it, then they can demand it be included. They don't need you and the Democrats to do their work for them on this issue.

Posted by: constans | January 27, 2010 11:22 AM | Report abuse

The Repugs don't really care about cost controls. They just want to either kill the bill or make it so lousy that even if it passes lots of people will hate it. All they care about is destroying Obama.

Posted by: AuthorEditor | January 27, 2010 11:40 AM | Report abuse

Ezra,

You should read the postings of a blogger-- forgot his name-- who has been posting for MONTHS about the importance of the excise tax as critical to cost control. He's noted that while the bill has been widely criticized on cost control, that the excise tax is one the biggest opportunities to control costs in health care and "experts" agree that its an excellent policy. He's also been talking about how controlling health care costs is fundamental to the future fiscal health of the US.

Here is the link to his blog:

http://voices.washingtonpost.com/ezra-klein

Posted by: wisewon | January 27, 2010 11:40 AM | Report abuse

Ezra,


Fine. Tax EVERYONE'S benefits. Yours, mine, unions. That's as it should be. We shouldn't just be for cost control in name only we should actually want to do it if we want healthcare to be sustainable past the next decade. And to that extent the subsidies cause the same problem. If people don't feel it somehow because the government is paying for it then we'll end up in the same sinking boat.

Posted by: visionbrkr | January 27, 2010 11:44 AM | Report abuse

Taxing rich people is popular until the people who don't think of themselves as rich suddenly find that, according to the government, they are rich after all.

Or until that "gotcha" luxury tax puts all sorts of working class joes who cater to the spoiled rich folks out of business. Then taxing rich people seems a little short-sighted.

Or when the company you work for folds because the rich people aren't buying your product, or investing, or doing whatever--then taxing the rich becomes less popular.

Taxing rich people always tends to be popular in the abstract, because people don't see themselves as being rich even when their household income is statistically fairly high, and they don't think the rich people are going to stop buying yachts, or fire staff, or decided not to invest in a business because they get an extra 5% added to their tax burden. But then, those things happen, and--to some--taxing the rich then becomes a less exciting proposition.

That being said, taxing the rich to pay for healthcare would be a whole heckuva lot smarter than a blessed *excise tax* on the best insurance plans. Good grief, what were they thinking?

And taxing health insurance may be a Republican idea, but it's certainly not a conservative idea. You aren't going to win over anybody except John McCain and Olympia Snowe with an excise tax.

Unless the idea is to try to force the people with the best healthcare into lesser coverage as some sort of angle for pushing universal healthcare. Maybe that was the idea? Because otherwise, the Democrats adopting a "Republican" idea that even most of the conservative base, not to mention many liberals, finds repugnant is just crazy.

Posted by: Kevin_Willis | January 27, 2010 11:47 AM | Report abuse

And I loved the article on Oregon voters voting to tax business and rich folks to pay for all the cool stuff they want.

"The tax increases, which would raise about $727 million" . . .

Assuming that it doesn't make better financial sense to relocate your business elsewhere. Or move, if you are a wealth individual.

"The Legislature, controlled by Democrats, has already put the $727 million into the current budget"

And what are they going to do when the tax increases only net an additional $650 million? Or maybe only an additional $430 million? The rational for the excise tax is that it controls costs because it obligates those being taxed to change their behavior in order to avoid paying the tax.

Do the folks in Oregon really think businesses and individuals won't change their behavior to avoid these new taxes? Businesses can move, and do. So do individuals. Both businesses and individuals can shelter income. And studies have shown that the higher taxes are, the more likely businesses and individuals are to significantly underreport income, or fail to file income tax returns at all.

I'd be curious if, in a year, it turns out that they actually got that extra $727 million. Because I'd be willing to bet a dollar that it turns out to be something less, and possibly something a lot less.

Posted by: Kevin_Willis | January 27, 2010 11:55 AM | Report abuse

I spoke with a guy from the IBEW yesterday, who, if he is right, had a strong point to make about the excise tax. When IBEW members are working, they pay $12,000 per year for health care. That sounds like a Cadillac plan. But that funding actually covers the unemployed within their union and a reserve pool for when they are out of work themselves as well as family coverage for their family.
It seems to me that this might be more of an accounting issue than a Cadillac plan. I don't see why the funds that support the unemployed necessarily should be counted with direct insurance costs. But if they are, the union certainly has a point in opposing the cadillac tax on a bus.

Posted by: ljfamily | January 27, 2010 11:58 AM | Report abuse

We all know, Kevin, how prosperous those low-tax states of Alabama are.

Determine the sort of government and infrastructure you want to have, and then figure out how to pay for it. If you don't want to pay for it, then don't have that infrastructure and services. You'll find that this creates both a preference for progressive taxation as well as a slow-to-moderate growing government (aka, "The Clinton Years"). If you want a less progressive tax structure, then you'll want much less income inequality.

If you create prosperity, then people have fewer complaints about their marginal tax rates.

Posted by: constans | January 27, 2010 11:59 AM | Report abuse

*When IBEW members are working, they pay $12,000 per year for health care. That sounds like a Cadillac plan.*

What? For a family plan, that sounds like a good deal. Maybe a bit expensive for an individual plan, though.

Posted by: constans | January 27, 2010 12:05 PM | Report abuse

i'm betting Oregon sees a jump in their unemployment rate based upon those practices. Its not as if business owners are a bottomless pit that Oregonians will just gladly shell over whatever you like. Or as Kevin says they'll just move. You wouldn't imagine how many small employers move if they live on the border of their state or another that has more favorable (taxes, insurance costs etc). Don't you realize how little Delaware is and how many Delaware corporations are out there??

Posted by: visionbrkr | January 27, 2010 12:08 PM | Report abuse

1. I'm 100% in favor of raising marginal tax rates on high earners. The Republicans who claim that it would squelch innovation and progress forget that in postar America, the "golden age" of the US economy, nominal tax rates reached 90% and ran negligible deficits.

As much as I favor increasing taxes on those in the top ranges, I don't understand the logic of targeting them to fund specific social programs. If health care really is an issue of national importance, then we should all be contributing to its improvement/expansion to whatever extent we are able.

2. Taxing benefits based on premium cost is not a strategy to reduce costs; it's an effort to raise money to buy more of a dysfunctional model. The excise that reinforces the most undesireable aspects of our current model --i.e. individuals are not responsible for the consequences of their choices -- and does nothing to actually fix problems.

If you want to stop individuals from overconsuming, then tax *individuals* for *that*: eliminate the employer exclusion and replace it with an individual exclusion correlated with a level of coverage and make all individuals pay for any additional coverage with their own after-tax dollars.

Posted by: Athena_news | January 27, 2010 12:09 PM | Report abuse

*Don't you realize how little Delaware is and how many Delaware corporations are out there??*

I would assume that Delaware has about as many corporations as could be expected for a state of their size, once you take into account their location advantage.

Yes, it has a lot of corporations that are CHARTERED in Delaware, so that legal disputes will be mediated within Delaware's legal system, but few corporations actually have any Delaware operations outside of the ones that have specific interests in that state. Seriously, visionbrkr, this is your argument?

Posted by: constans | January 27, 2010 12:17 PM | Report abuse

constans: I don't know if you've been to Alabama recently, but it's not a bad place to live. It's certainly a more affordable place to live. An income that would get you a crappy apartment on the south side of Chicago will get you a nice little house in Mobile.

Otherwise, I generally agree with your points. I just suspect than the assumption that those being taxed will behave statically is incorrect, and that revenue will not be what was projected.

But the voters of Oregon have spoken, and hopefully it will work out well for them.

Posted by: Kevin_Willis | January 27, 2010 12:20 PM | Report abuse

constans,

I was speaking of the comparison of healthcare costs (of which I know a little bit about). NJ's costs are through the roof but companies along the border or that have operations in NJ and Delaware would rather be listed as a Delaware corporation and pay Delaware taxes than NJ. I wasn't inferring the charter/legal route (although i could see how my post was worded you could assume that), but rather i was speaking of the tax and insurance issue. Same goes for PA and NJ along NJ's western border. I have several clients that "moved" across the border for tax and insurance cost reasons. When you can save 30% in insurance costs and a lot in taxes sure it makes sense to set up in another state with an "office".

Posted by: visionbrkr | January 27, 2010 12:23 PM | Report abuse

visionbrkr:

I live in the Memphis, Tennessee area. Tens of thousands of folks have moved to Mississippi (individuals, not so much companies) based on property tax rates. Businesses would probably move over their in droves, too, if the government was a little more business friendly (it is casino friendly, but that's not the same thing to your average small business).

For years, people have been moving out of the urban city into the suburbs, chased out by tax increases, mostly in regards to property taxes (but usage fees and other miscellaneous taxes as well). Now, they are moving out of the county, over to the next county, where taxes are lower--and some businesses are following. The result is, the tax base for the city is constantly eroding, and there are less employers each year, and thus there are less jobs.

Not saying that, in the right place, a social compact where everybody agrees to get skinned alive on their taxes in return for great roads, parks, bike pathways, and mass transit won't work, but when taxes are raised the benefits promised are ambiguous--it's going to education and stuff!--people who can leave to avoid paying those taxes do, in fact, leave.

Posted by: Kevin_Willis | January 27, 2010 12:34 PM | Report abuse

visionbrkr, thanks for clarifying. NJ is the most densely populated state in the union. I wouldn't begrudge company that decides to move across the border, but it creates space to be replaced by companies that can afford it or simply prefer the overall NJ business climate. New York City has special income and sales taxes that you have to pay simply for the privilege of living and working in New York City... and people pay them, because New York City is a very expensive place to maintain and operate... and Mississippi doesn't offer the same advantages.

I know some smart people who lived in Mississippi. They left for greener pa$ture$ and ended up living in higher-tax states. I've noticed something when it comes to people who make a lot of money: they tend to live in places where there are lots of opportunities to make a lot of money.

Posted by: constans | January 27, 2010 12:44 PM | Report abuse

Kevin,

there's a saying here in NJ. No one ever MOVES to NJ. Mainly because of property taxes, income taxes, sales taxes etc. We're one of the highest taxed states in the country. You either are here because you were born here, work here or go to school here and then once you have no more reason to be here, you get out and quickly.

Posted by: visionbrkr | January 27, 2010 12:44 PM | Report abuse

Take a look at a map of Oregon. California to the south and Washington to the north are both high tax states, while there are not an awful lot of people living near the borders with Idaho and Nevada. Someone or some business wanting to move will have to go a long way. Also, note how much of the country's wealth and power is concentrated in the highest tax region: Washington to Boston. Even high-taxed folks like to be near to things like jobs, infrastructure, and culture.

Posted by: AuthorEditor | January 27, 2010 12:53 PM | Report abuse

constans,

no problem. yes they'd be replaced by new companies if NJ had an enviorment that fostered businesses but we don't. Unless you're willing to set up in an Urban Enterprise Zone. Some companies will, most won't. Not to just reduce sales tax to 3% especially if you're not selling a physical product.

As far as people living near where the money is that was true in the past but more and more with tele-commuting, video conferencing etc its not required. I have a client in Michigan that I see once every 3-5 years if I'm lucky (or unlucky). Every business is different and has different requirements as far as contact with clients but more and more its through voice mail, email etc. The day of the door to door salesman has come and gone.

Posted by: visionbrkr | January 27, 2010 12:56 PM | Report abuse

*You either are here because you were born here, work here or go to school here *

Well, why are you working there if economic opportunities are so poor? And how do you work there without moving there?

NJ is a very high-expense, high-reward place. Lots of places are like this. People come there for the rewards, and then either decide to stay or cash-out. But there's nothing to cash out *with* unless you go there in the first place.

Not sure Michigan is the example you want to be using as an alternative, btw.

Posted by: constans | January 27, 2010 1:15 PM | Report abuse

Oregon has the lowest tax burden of all those states including Idaho! We have no sales tax and a severely limited property tax. It's a nice place and people move here for that so I doubt a lot of people are going to move over a very marginal increase in taxes. I'm not sure unemployment could increase here as the economy is still very dependent on producing material for the construction industry, once people start building in this country again things should turn around.

Posted by: ligedog | January 27, 2010 1:26 PM | Report abuse

*Oregon has the lowest tax burden of all those states including Idaho!*

This is actually true and outlined here:

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

Many states have high apparent tax levels because they have high tax revenues per capita, but that is generally because those states have a wealthier population. When looked at as a percentage of GDP per capita, places like Oregon turn out to have low tax burdens.

I assume that in the above-linked table, places like NH and NJ have the picture distorted because their high property (local) taxes are not included.

Posted by: constans | January 27, 2010 1:34 PM | Report abuse

constans,

you know what I do right? Sadly my economic opportunties are not poor even in this economy although I've been screaming as best I can (through cost control) that I'd like them to be. Also there are other things that keep people here. My kids are in school here and I don't want to interrupt that and the schools here are very good. That being said once they graduate and move on and I get older and closer to retirement I could absolutely see myself working from another state while maintaining my work in this one.

And Michigan was only used as an example of the fact that in my industry I don't need to be close by my clients to maintain them and keep them happy. I'm fully aware of the mess they're in.

Posted by: visionbrkr | January 27, 2010 2:44 PM | Report abuse

For funding healthcare, I prefer the excise tax to the surtax on high incomes. Why? Partly because of Ezra's wonky reasons relating to cost containment, but even more because we will need to tax the high earners to preserve existing programs and cut the deficit when the time for stimulus ends, all too soon.

The more that's available to take from top earners, the less we will have to take out of everything else. And as Oregon has shown, putting the issue that way can be a winner: do you want to give up services or impose a surtax on people earning 250K?

Posted by: Sophomore | January 27, 2010 2:47 PM | Report abuse

"If these are the new rules..."

Are you kidding me? These have been the rules since the general election began (if not 30 years before)! You are now waking up to the fact that the excise tax is poison?

I'm glad you are starting to think about it now, though. If R's win, we'll have more unfunded spending (mostly to heavy R contributers) leading to that perfect financial disaster they've been working on for 30 years!

It'll be great, they'll trim medicare a little bit -- and we'll be paying huge debt payments for 80 years...

The R party would be considered functionally insane -- if they were a person like corporations.

Could you imagine what the R politicians would say about a person who spent like a drunken sailor, borrowed like crazy, and didn't bring in money so they could create a financial disaster -- all to get their way on something small?

Posted by: rat-raceparent | January 27, 2010 3:10 PM | Report abuse

visionbrkr, I wasn't claiming that your economic opportunities as a person were poor. I pointed out that economic opportunities in NJ are good, which is why people move there: because they get jobs there.

And I'm hitting the age where people my age are moving out of New York City because they need space for their families now that they have a second child, and lots of immigrants are now arriving in NJ first instead of starting off in New York. So while you're planning to leave when your kids leave home and you retire, there's enough demographic pressure that means there are ample demands to replace you. And part of the reason for that is the high level of public services, educated population, and geographical advantages. Think of it as the white collar version of gentrification.

Posted by: constans | January 27, 2010 3:14 PM | Report abuse

Using the logic the Democrats have used to explain away the Massachusetts loss, those who opposed this tax increase should come out and claim the voters in Oregon actually wanted tax cuts. It may sound silly, but such a statement would sound no more asinine than the attempts by those on the left to explain away the Brown victory and what it means for health care.

Posted by: Bob65 | January 28, 2010 8:49 PM | Report abuse

" I'm 100% in favor of raising marginal tax rates on high earners. The Republicans who claim that it would squelch innovation and progress forget that in postar America, the "golden age" of the US economy, nominal tax rates reached 90% and ran negligible deficits."


Hey, I have an idea. Why don't you mention that marginal rates used to be really, really high but then forget to mention that the things for which you could deduct taxes were so vast, it didn't really matter. Oh, wait, you already did that. My bad.


As for some other commenters, it is quite simply amazing to read comments from people who favor higher taxes on the rich (which according to the state of Oregon is someone making only $125,000/year)for no other reason than simple envy. Hopefully Oregon will go the way of California, a state in which high taxes have caused more people and businesses to leave than have been replaced. It is mindboggling that people don't think increased taxes can have a deleterious effect on businesses.

Posted by: Bob65 | January 28, 2010 8:57 PM | Report abuse

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