Paying for The Health Bill Part II

I have been stressing this question and am pleased to see others beginning to look at it as well. Ezra has a good post:

In the House/Senate negotiations, Democrats want to make three major changes to the health-care bill, all of which cost money. First, they want to weaken the excise tax, which means less revenue. Second, they want to increase the subsidies, which means more spending. And third, they want to extend some version of the Nebraska deal federalizing the Medicaid expansion to all the states. That, again, is pricey. So where does all the new money come from?

One answer? Applying the Medicare tax to all forms of income above 250K per year:

Currently, the Medicare tax applies only to wages, without any limits. The 2.9% tax is divided in half, with workers and employers each paying 1.45%. The health bill passed by the Senate would raise the worker contribution to 2.35% for individuals making more than $200,000 a year and couples making more than $250,000 a year.

Under the proposal now being considered, people making more than those amounts would also pay the Medicare tax on dividends and other income from investments, the people familiar with the talks said. Income from pensions and retirement accounts, including 401(k) accounts, would be exempt.

If they prefer a "Medicare" tax on the wealthy instead of an income tax for political purposes, that works for me. However, Ezra makes a good point:

Why Democrats prefer a new Medicare tax to, say, capping the itemized deductions rate at 28% for taxpayers making more than $250,000 is, however, beyond me. And if you did that, you'd have more than $300 billion in new money to play with.

300 billion is more than 100 billion. Ezra has a strong point here.

Speaking for me only

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    Do both (5.00 / 1) (#1)
    by BobTinKY on Tue Jan 12, 2010 at 11:46:52 AM EST
    what Ezra suggests and not only apply the Medicare tax to income above $250k, double it.  Then cut in half the Medicare tax rate rate for incomes below $125k.

    This minute tax hike (5.00 / 1) (#3)
    by Militarytracy on Tue Jan 12, 2010 at 12:12:07 PM EST
    on the upper echelon needed to happen ages and ages and ages ago.  They've ripped all of us off and the so called investments available have no integrity.  There is no better place for any of us to invest than in the health of all Americans. It is conceivable that when my spouse retires and takes a contractor job that we would have to pay this extra tax.  If I ever go back to work again we will certainly be paying this extra tax.  I will pay it gladly.

    Minute Tax Hike (5.00 / 1) (#5)
    by coast on Tue Jan 12, 2010 at 12:41:15 PM EST
    Yes individually it does look small.  Don't forget thought that the tax rates are also suppose to go up, thats another 3-4% for those at $250K and above.  And let's not forget the increase in capital gains tax from the current rate on long term gains of 15% to 20%.  Oh yeah, dividend rates increase also.  For those making $250K and above that results in and increase from 15% to 36% to 39% depending on which bracket your in.  Lets not forget about our states and cities.  They aren't doing so hot either, so you can expect those to increase as well.  And those are just the increases in your income tax.  You are also going to see increases in property, sales and other taxes too. So yeah, alone this is small but don't forget about the bigger picture.

    taxes on high earners have (5.00 / 2) (#15)
    by hairspray on Tue Jan 12, 2010 at 01:54:26 PM EST
    been notoriously low for the last 15 to 20 years.  Time to recoup.  Think of how much better off the country was paying for infrastructure before taxes went into the basement. Its these stupid wars that haven't been paid for that put us in the ditch.  Maybe we should just pass a war tax and be done with it.

    Yes those nasty higher earners (none / 0) (#19)
    by coast on Tue Jan 12, 2010 at 02:51:53 PM EST
    have been getting away with robbery.  They take in about 40% of the income pay about 60% of the bill.  Who do they think they are?

    40% of income? (5.00 / 2) (#32)
    by cawaltz on Tue Jan 12, 2010 at 05:27:49 PM EST
    I don't know where you get your numbers from or perhaps when you say 40% you mean earned income because the top 20% in this country own 85% of the wealth as of 2007. Leaving 80% of the country to share 15%.


    You'll forgive me if I don't get all teary about the idea that they might have to share some of that wealth with the bottom tier that comprises the majority of the country.


    Numbers come from IRS Data (none / 0) (#35)
    by coast on Tue Jan 12, 2010 at 09:31:27 PM EST
    Well (5.00 / 1) (#37)
    by cawaltz on Tue Jan 12, 2010 at 10:31:45 PM EST
    that explains it since the jets, and the vacation homes abroad and all those nifty little things that define wealth for us don't get accounted for adjusted gross income.

    I did take note of this statement though

    In sum, between 2000 and 2007, pre-tax income for the top 1 percent of tax returns grew by 50 percent, while pre-tax income for the bottom 50 percent increased by 29 percent. All figures are nominal (not adjusted for inflation).

    Boohoo, their income only increased by 21% MORE than the average American. It would be soooooo absolutely godawful if they might have to pay a percentage point or two more of their money to close that gap.


    Sorry, coast (5.00 / 1) (#34)
    by christinep on Tue Jan 12, 2010 at 05:48:50 PM EST
    When the disparity of the "haves" and "have nots" (especially documented, anecdotally and semi-scientifically, in recent years) has increased so much, even sarcasm or whatnot about the increase in effective taxation to those fortunate enough to be reasonably wealthy doesn't play well. Look, you make a good point about the overall effect. The subpoint about states and cities is particularly well-taken. Yet, a restoration--as it were--clearly is called for after the Bush bonanza for the wealthy. Whether it is class war or populism, I really don't know. What I do know is that the disparity favoring the wealthy needs to be rectified. Perhaps, in the context of the Medicare taxation scheme, that would be a start at rectification. But, please, lets focus on the real need in these economic downtimes.

    I don't disagree that there is a (none / 0) (#36)
    by coast on Tue Jan 12, 2010 at 09:40:51 PM EST
    disparity.  However, the repeated calls to "tax the wealthy" can only last so long and can only pay for so much.  It will not be long before people (and Congress) realize that there is nothing left to take from them and we, the middle class, will be next in line.  Spending has to brought under control before that happens, if we are not already there.

    Nothing left to take from them? (5.00 / 2) (#38)
    by cawaltz on Tue Jan 12, 2010 at 10:40:17 PM EST
    Which part of the top 10% own over half of the wealth in this country and the top 20% own 85% don't you get.

    What you are saying flies in the face of conventional wisdom when wage disparity continues to grow.

    You're absolutely right though it would be terrible to tax poor Robert Lane's 61 million at too high a level. If we did so he might just decide to quit his position as CEO and become a stock boy at his local Kroger for $7.00 an hour. Oh the inhumanity of it all.

    (tongue firmly in cheek)


    Pardon me as I LOL. (none / 0) (#41)
    by hairspray on Wed Jan 13, 2010 at 07:19:02 PM EST
    Oh my oh my.  What a scenario.  The banking meltdown should have opened people's eyes about those money people who earned millions of dollars a year for lying, and cheating.  Tax them until they what.....?  And stop the tax havens and make them abide by the rules like the rest of us.

    Taxes have always been paid primarily (none / 0) (#20)
    by esmense on Tue Jan 12, 2010 at 03:01:38 PM EST
    by the rich. Because that's where the money is, and because the rich profit more from government. When government starts taxing the peasants, that's usually a precursor to revolution.

    This country didn't always have an income tax, but, like any government, ours has always levied taxes. Those taxes were always designed to fall heaviest on the richest citizens.


    Bull (5.00 / 2) (#22)
    by BobTinKY on Tue Jan 12, 2010 at 03:18:30 PM EST
    If any rich person (over 250k /yr)  who thinks he or she is paying the largest share of taxes would care to trade incomes with me, let's do it.

    Since Reagan there have been no bigger or more disgusting free riders than the well to do in the USA.


    I think you missed my point (5.00 / 1) (#28)
    by esmense on Tue Jan 12, 2010 at 04:20:23 PM EST
    My point is that, until very recently, taxes were understood as primarily a responsibility of the rich. Tariffs imposed by the US government in the 19th century, for instance, fell most heavily on the most affluent (who could afford imported goods). Income taxes levied to support the Civil War were levied on the most affluent. Our first national income tax affected only a very tiny, and very rich portion of the population. The notion that the rich should somehow be uniquely exempt from taxation to support the government and its various adventures and undertakings wouldn't have made sense to most people in the past. And, frankly, it still doesn't make sense today.

    Taxes are paid primarily by the rich (5.00 / 1) (#29)
    by Militarytracy on Tue Jan 12, 2010 at 04:49:13 PM EST
    because the whole existing infrastructure is what protects and enables their effing wealth.  They have more chit to steal, to deal, to drive on the roads...you name it.  And the rich became rich on the backs of the unrich in the infrastructure so DUH!  Pay up richies to maintain the civil society you enjoy or go try your luck in South America where the jungle gorilla can slit your throat and just steal all of your chit!  I'm sick of whining rich.  There is no free ride and if the rich want to be subject to the laws of the jungle instead of the law of the land they can keep on whining and lobbying for the return of the jungle.

    Having spent time in Brazil and (none / 0) (#39)
    by hairspray on Wed Jan 13, 2010 at 07:11:23 PM EST
    seeing the two tier system there was an eye-opener.  Of course the people who mostly live in the south or upper western US states like Wyoming have never seen how countries like those operate.  Pitiful infrastructure exists there because the rich spend their money crafting a society that is for them alone.

    Spare me the bull$hit please (none / 0) (#30)
    by Militarytracy on Tue Jan 12, 2010 at 04:52:23 PM EST
    How abused the rich are.  If we had UHC I would give you free therapy.

    We can certainly go back to the (5.00 / 1) (#31)
    by coast on Tue Jan 12, 2010 at 05:18:05 PM EST
    days where the top bracket was 70%, but it will just reduce revnues because they will have an incentive to dodge the system.

    By the way, the therapy wouldn't be "free".  Someone has to pay.


    So in essence it really doesn't (5.00 / 1) (#33)
    by Militarytracy on Tue Jan 12, 2010 at 05:41:43 PM EST
    matter if we tax them or not, they will attempt to not pay anything they don't want to pay no matter what?  They will employ bankers outside of the country to hide their money and then a whistle blower will turn them all in and the Obama Administration will imprison only the whistle blower.  I think I've heard this one.

    Yes, weren't those days (none / 0) (#40)
    by hairspray on Wed Jan 13, 2010 at 07:13:33 PM EST
    terrible.  No debts, money to build first class educational systems, research and all sorts of things that once made our country a leader.  Now what do we have, a country slipping into decline.  The evidence is everywhere.

    Capital gains 15% flat tax is an outrage (none / 0) (#21)
    by BobTinKY on Tue Jan 12, 2010 at 03:16:23 PM EST
    Why is 99% of my income subject to "normal" tax backets of 15, 25, 33 etc% and income from trading stocks and other investments, rich peoples' games, taxed at 15% no matter how large the annual income derived?

    Because we are an oligarchy.  Income is income and investment income from buying and selling assets ought to be taxed higher, not lower.  We devalue and insult labor in this country.

    And don't respond with any trickle down nonsense.  Proponents of that particular theory have a lot of explaining to do at this point in time.


    Trickle down theory... (5.00 / 1) (#23)
    by Raskolnikov on Tue Jan 12, 2010 at 03:26:46 PM EST
    ...might have made more sense theoretically when we had a stronger manufacturing and export base.  With an economy that relies on consumer spending and the services that result from this, then you need to put the money in the hands on the consumers, not the producers.  Its an antiquated idea in our modern economy.

    You make an interesting point (none / 0) (#25)
    by cawaltz on Tue Jan 12, 2010 at 04:01:41 PM EST
    Alot of the "investment" no longer even benefits American people since we have entered the age of the global economy and investors want cheap labor to reap returns.

    I will try to stay away from the (none / 0) (#26)
    by coast on Tue Jan 12, 2010 at 04:09:11 PM EST
    trickle down nonsense by just using good old dollars and cents.

    Say you have an AGI over $250K, that means your next dollar earned is taxed at 38% (36% rate plus the proposed 2.35%).  That leaves you with $.62.  You invest that entire amount in a stock.  You hold on to it for more than a year so you can take advantage of the long term rate of 20%.  You pick well and actually get a stock that appreciates 20% (average is 8% annually mind you).  You sell the stock for $.75.  This is taxed at 22% (the 20% normal long term rate plus the proposed 2.35%) for a tax of $.17.  So you are left with $.58.  So for the $1.13 that you earned through my work and investments, you walk away with $.58.

    Why would you risk the possibilty of losing $.62 so that you can walk away with $.58 when you actually did your homework and picked a really good stock.  The answer should be you wouldn't.  Increase in taxes on investment are a disincentive to invest because you have to do that much better to make the same dollar.

    Investment income should be taxed but you can't make it onerous.


    I'm not earning a darn thing off your investment (5.00 / 1) (#27)
    by cawaltz on Tue Jan 12, 2010 at 04:15:12 PM EST
    in all likelihood anyways. Since the jobs were shipped overseas(which the investment group cheered by the way).

    I'm all for taxing investment. Maybe then we can get rid of the ridiculous idea that your retirement should be dependant on a cyclical system anyways.


    I like Ezra's suggestion (5.00 / 1) (#6)
    by ruffian on Tue Jan 12, 2010 at 12:59:08 PM EST
    better than any other I have heard. Mainly because it starts to escape the trap of thinking of it as 'paying for the health bill'.

    IMHO, assuming for the sake of argument this health bill is one we really want, the strategy should be to say that the health of Americans is our number one priority, and we are going to spend what it takes to get affordable health insurance for everyone (I know - gag me on the insurance part, but that's where we are). And in order to do that we need to either raise taxes or cut other things, such as defense, dramatically. If they would rather target tax raises to individual groups for, instead of taxing health care plans, tax defense contractors or defense workers, and call it a war tax. They are some of the most well paid and job-secure workers in this economy, and furthermore get all of their tax money back in their salaries.

    There are lots of other possibilities once we escape the mind set that it is health care, and not anything else, that has to be deficit neutral.

    I wouldn't mind paying for the health (5.00 / 1) (#8)
    by inclusiveheart on Tue Jan 12, 2010 at 01:11:29 PM EST
    bill if we had a progressive single payer structure in place - wouldn't mind that at all really assuming the government would take on negotiating rates etc.  But never mind, that fell off the table almost a year ago now and has been held down by the neck with Obama's foot ever since.

    Exactly - that would be a more clear cut (5.00 / 2) (#13)
    by ruffian on Tue Jan 12, 2010 at 01:33:15 PM EST
    situation, and easier to sell to people as a 'premium' for their single payer plan.

    This hodge podge they have come up with, with its even more byzantine financing schemes, just breeds distrust in every aspect.


    I've mentioned this before in (5.00 / 3) (#14)
    by inclusiveheart on Tue Jan 12, 2010 at 01:47:05 PM EST
    other posts, but I have a number of GOP friends who are far more open to a single-payer model paid for with a progressive scale than they are to this crazy thing that's being discussed right now.  It is remarkable really that anyone thought that this convoluted and nonsensical bill would be well received by a public that is both tuned in and fairly wired about getting something that is really good rather than something that sounds good but is going to be problematic after the fiascos of the Bush years.

    I really do not think they understood what happened out in the country during the Bush years.  There was a transformation amongst the people, but these politicians really still haven't grasped that fact.  Now the GOP and the Democrats are really begining to look like "Dumb and Dumber" which is not a good thing for anyone.


    People will at least listen to (5.00 / 1) (#16)
    by ruffian on Tue Jan 12, 2010 at 02:09:51 PM EST
    and respect something that is cohesive and makes sense in its own terms, even if they do not agree with it. Then if we had good spokespeople to 'sell' it, I think a lot more people wold have been persuaded than the powers that be think. But they never even tried.

    Supposedly, we elected the greatest (5.00 / 2) (#18)
    by inclusiveheart on Tue Jan 12, 2010 at 02:32:38 PM EST
    spokesperson since Reagan.  Too bad he doesn't actually care about progressive or liberal policy enough to even just try to make the sales pitch.

    Yup- wish he was selling what I want him to sell (none / 0) (#24)
    by ruffian on Tue Jan 12, 2010 at 03:51:50 PM EST
    I thought the point of the excise tax was not to (5.00 / 1) (#11)
    by Buckeye on Tue Jan 12, 2010 at 01:24:32 PM EST
    collect revenue?

    We run the mint (none / 0) (#2)
    by jbindc on Tue Jan 12, 2010 at 11:48:07 AM EST
    Just print more money. <snark>

    A modern medical system costs a LOT of money (5.00 / 3) (#4)
    by esmense on Tue Jan 12, 2010 at 12:21:24 PM EST
    and requires the socialization of those costs. Our system is socialized, but, for ideological reasons, it is socialized stupidly. The result is, compared to other technologically advanced nations, higher cost for the nation's business community, consumers and taxpayers. And less accessibility and affordability for the nation's citizens.

    We would be better able to get a handle on those costs -- and ensure that more citizens can actually benefit from the medical resources we are all paying for in one way or another -- if we would just man up and accept that fact.


    You understand that because (5.00 / 1) (#10)
    by inclusiveheart on Tue Jan 12, 2010 at 01:13:23 PM EST
    pretty much all of the other industrialized nations regulate things like pharmaceutical prices, we in the US make up the difference by paying through the nose?  You know that right?

    You understand that our disfunctional system (none / 0) (#17)
    by esmense on Tue Jan 12, 2010 at 02:18:11 PM EST
    makes it difficult for us to regulate cost?

    Do you know the concept, "whatever the market will bear?"

    That's what's going on with our cost in terms of Big Pharma. It's not about what other countries are paying -- its about what we are willing to pay.

    The pharmaceutical industry is swimming in profits. It not only spends much more on marketing than on research, it spends without restraint. In my career in advertising, I never encountered a client in any industry that spent as freely and with as little accountability as pharamceutical clients. My husband, an illustrator, did a lot of work for pharmaceutical clients -- they paid much better than any other industry, many times over. On one job, in addition to paying him quite well for a simple line drawing, the pharmaceutical company flew both of out to, and put us up in, New York so that Mike could personally sign 40 prints of the drawing to be given to doctors at a swank little gathering they were hosting.

    It was fun. But it didn't make me think the industry is suffering greatly because of negotiated pricing with other countries.


    Ezra's idea does make sense; (none / 0) (#7)
    by KeysDan on Tue Jan 12, 2010 at 01:10:30 PM EST
    another thought would be to divide the increase proposed for just the employees (at income levels $200,000/250,000) between employees and employers (keeping the shared contribution concept and such employers should be able to handle the 0.35% increase) and exempt dividend and investment income.  On top of that, keep the House version--a surtax on incomes above $500,000/$1,000,000.  The revenue will be needed for the Nelsonized Medicaid and for the overly optimistic, if not totally unrealistic, Medicare "savings without benefit reductions."

    where does all the new money come from? (none / 0) (#9)
    by SOS on Tue Jan 12, 2010 at 01:12:19 PM EST
    Uh I think we better wait a bit till the Federal Reserve has to eat all these uneaten treasuries piling up  on their plate while it's already choking to death on collateralized debt obligations and related worthless toxic trash securities first.

    Kind of just step back and slow down a bit before we make a decision we would ultimately regret?