A Tax On The “Rich” To Remake American Healthcare

Having money is not what it used to be. According to several media reports, the billionaire mayor of New York City, Michael Bloomberg, lost millions of dollars in the market downturn. He has apparently had to lay off some of his private staff and rent out his vacation home in Wellington, Florida.

Now that the well-to-do have lost hundreds of billions of dollars in the stock and real estate markets, Congress appears ready to call on them to fund the new health care reform package.

The nation’s hospitals have agreed to contribute $155 billion over the next decade by giving up some Medicare and Medicaid payments. Pharmaceutical companies have agreed to put $88 billion into the pot by lowering costs for certain drugs. But, the entire health care program being pushed by the Administration will cost more than$1 trillion.

One of the solutions to bringing in additional funds to close the funding gap is a tax on health benefits. This would increase the financial burden on the middle class families which benefit from health insurance, most of it paid for, at least in part, by large and medium-sized companies that are their employers. But, pushing up the tax burden on households with incomes of $75,000 is not politically popular. These taxpayers are already suffering from high energy prices, large credit card balances, and falling real estate prices.

A number of members of Congress believe that the last and best place to fund the expensive health care initiative is to the “wealthy.” House Democrats have floated the idea of adding to the taxes paid by households that bring in $350,000 a year. These households would pay a 1% “surtax” to help fund health care reform. That “surtax” would rise to 3% on households with married couples with incomes of over $1 million. Even at that income level, $30,000 a year in additional payments to the federal government will be, in most cases, a burden.

There are economists who believe that almost all taxes are regressive. Income taxes above some level almost certainly are. Whether that is 30% or 40% of total income is impossible to say. The well-to-do also pay a large portion of state and local income and property taxes. The numbers add up quickly.

A household with $30,000 less in after-tax income a year is likely to spend $30,000 less a year, especially during a recession in which unemployment will almost certainly pass 10%. The wealthy are not immune from job loss. They are as likely as anyone else to be frugal during a frightening economic downturn.

The $30,000 that a household does not spend is $30,000 out of the retail market, or the car market, or the real estate market. It undermines economic recovery. If the Congress passes the surtax, the government is about to find out what the real “cost” of the health care program will be.

Douglas A. McIntyre