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.