Surtax Not That Much Of A Burden
The Disease Management Care Blog’s Jaan Sidorov has written an interesting article discussing the idea of using a surtax on people earning over $200,000 ($250,000 for joint filers) in order to help fund healthcare reform. After presenting arguments both for and against the tax, he asks his readers to consider whether such a tax is a good idea, and whether it’s fair.
Jaan points out that while $200,000 amounts to a huge income today, more of us will start to earn six figure incomes as time goes on, simply because of inflation. For this reason, I’d prefer to see the income threshold for the tax written as a percentage of federal poverty level, rather than an unchanging dollar amount.
But let’s look at the actual impact of the tax as it’s currently written in the Senate bill. It wouldn’t take effect until the beginning of 2013, so wealthy Americans would have three years to squirrel away savings before they had to start paying a little extra in taxes. And the actual amount of the tax is set at half of a percent of income above the $200,000 threshold. Let’s consider a CEO who earns a million dollars a year, filing on his own. $800,000 of her income would be subject to the healthcare surtax, at a rate of 0.5 percent. Half of one percent is not a large chunk of anything. In this case, it would amount to $4,000 ($800,000 times 0.005). So we would be asking a person earning a million dollars a year to kick in an extra $4000 to help pay for healthcare. My vote? That is perfectly fair. Her million dollar a year salary puts her above nearly every other American in terms of earnings, and $4000 doesn’t make much of a dent in a million dollars.
Since most of us don’t personally know anybody who earns seven figures, let’s consider someone who earns $300,000 a year as the sole breadwinner for a family, filing jointly with a spouse. $50,000 of that income would be taxed, amounting to a $250 surcharge. Is it reasonable to expect a family earning $300,000 a year to pay an extra $250 to help fund health care?
I think that sometimes people get caught up in the notion of taxation being an unfair burden without actually stopping to calculate the specific financial impact of the tax in question. In this case, I believe that the proposed rate of taxation is so low that it isn’t likely to have a significant impact on the people who pay it. But the overall impact on the health of the millions of Americans who are currently uninsured could be quite significant. And this is why I’m in favor of the surtax.
I found Jaan’s article in the Cavalcade of Risk, hosted this week by Insurance Copywriter.
Louise:
Looking at a surtax is one way to pay for the ever-increasing medical costs.
If we continue to find ways to either pay for the medical services, or for the premiums, what will be the result down the line if we are successful?
Costs will continue to outpace wages, and the affordability is lessened even more.
We keep trying to replace 10 rocks that fall, with the band aid of 5 rocks!
In addition, where would these surtaxes likely go?
Exactly where our taxes for Medicare and Social Security go – into the Treasury.
According to the Ways and Means Committee, “Along with many other forms of revenues,these Social Security taxes become part of the government’s operating cash pool, or what is more commonly referred to as the U.S. Treasury. In effect, once these taxes are received, they become indistinguishable from other moneys the government takes in. Social Security checks are paid from the Treasury, not the trust funds.”
Do we want our surtaxes paying for medical care, as well as battleships and wars?
Go to:
http://waysandmeans.house.gov/media/pdf/greenbook2003/Section1.pdf.
Look on page 1-6.
That’s a great point Don. On one hand, I guess it’s a good thing that they’re atleast thinking of how to pay for the extra benefits being proposed.
On the other hand, they could sell the tax increase in a different way…
If money is just going to that pool where it then just becomes indistinguishable from other monies, people won’t be as likely to support the tax increase. So you say:
“Hey, everybody making above this amount will start getting a X% tax increase. But we’re going to have two separate funds for the money, and these funds are the only place the extra money ends up. One fund is for health care and the other fund is for battleships and wars. Check the box for the one where you want your money to go.
I’m guessing that roughly the same amount will end up going to fund each service anyway. But people would be more supportive of it if they feel like they had a choice. Eh?
Jay:
Thanks for the chuckle, my first today!
Yeah, it’s better to have options.
Realistically, Social Security and Medicare are around 30% of the budget.
If that is true, then 30 cents of every dollar of taxes that goes into the Treasury pays for those 2 programs.
The same would hold true with the surtax, if we group all medical care taxes together.
Congress has the authority to tax and appropriate. It does not have the authority to appropriate certain benefits from certain taxes.
In fact, if there were no FICA taxes, Congress could still provide for Social Security and Medicare benefits out of whatever revenues it collects.
It already pays for 75% of Parts B and D from general revenues.
Taxes and benefits have no direct correlation.
Earnings history ARE directly related to benefits.
Don Levit