Recently, I’ve become a member of a Washington Post health care panel that answers a weekly questions about health care reform. This week’s query, “Should We Tax the Rich to Cover the Uninsured? refers to the House proposal, released earlier this week, which would tax the wealthy to help finance reform.“
Below, my answer, plus some additional thoughts:
Sometimes a picture is worth a million words. This graph, from the Center on Budget and Policy Priorities tells you why it makes sense to tax the very rich to fund reform.
Focus on the red bars. They show how much the wealthiest 1 percent of all households benefited from income gains as the country grew wealthier from 1946 to 1976 (the group of bars on the left) –and the degree to which they shared in the nation’s prosperity from 1976 to 2006 (the bars on the right.)
During the thirty years following World War II, the richest 1 percent enjoyed 20 percent of the gains—which is to be expected. It takes money to make money. Wealthier Americans are in a position to pay for education that will help them leverage their talents, and they have the deep pockets to take advantage of the best investment opportunities—buying stocks, real estate, businesses and other assets when prices are low.
But the vast majority of all Americans—the lower 90 percent on the income ladder—also did very well, taking in 80 percent of the wage benefits that came with the nation’s growth.
By contrast, in more recent years growth was no longer widely shared. From 1976 to 2006 the mega-rich enjoyed 232 percent of the gains while the bottom 90 percent saw only 10 percent of the benefits. And in recent years, the trend accelerated. From 2002 to 2006, the share of the nation’s income flowing to the top 1 percent climbed from 15.8 percent to 20.0 percent. “Not since 1928, just before the Great Depression, has the top 1 percent held such a large share of the nation’s income,” the Center observes. :
Table 1: Average Income Gains, Adjusted for Inflation, 2002-2006
In 2006, the bottom 90 percent of households were those with incomes below about $105,000. The next 9 percent were those with incomes between $105,000 and about $368,000, and the top 0.1 percent were those with incomes above about $1,764,000.
When growth is no longer widely shared, the imbalances that are created can threaten both a nation’s economy and its social solidarity. Today, as in the 1930s, we are suffering through a deep recession caused, in large part, by the excesses of the past. In recent years, just as in the 1920s, too much money was concentrated at the top, and not knowing what else to do with the money, the very wealthy went on a spending and investing spree. This meant that too many dollars were chasing too few things—in this case, mainly stocks and real estate—and prices levitated, creating bubbles. Now, we’re enduring the collapse that invariably follows any bubble..
That concentration of wealth also has widened the gaps in our society between the upper-class, the upper-middle-class, the middle-class, the working poor and the very poor. Unless we begin to address the inequities that are driving us apart, before long we will become a nation of strangers. Asking the very wealthy to help finance healthcare for all is a step in the right direction.
Who is Being Taxed—And Can They Afford It?
Keep in mind that the House proposal is not suggesting that we tax the upper-middle-class—or even the wealthiest 10 percent of all households. The tax would target a much smaller group—roughly the top 1.5 percent. The House would place a modest surtax of 1 percent on households with incomes over $350,000 –and 1.5 percent on couples with incomes of $500,000 to $1 million. It would impose a surtax of 5.4 percent only on couples with more than $1 million in income. It would not (as some have suggested) raise capital gains and dividends taxes for everyone. It would include capital gains and dividends in the gross adjusted income subject to the surcharges which apply only to households earning over $350,000—and for everyone earning less than $1 million, the increase would no more than 1.5%.
Can the very wealthy afford the surcharge? Consider this: From 2002 to 2006 the average inflation-adjusted income of the top 1 percent of households rose 42 percent, whereas the average inflation-adjusted income of the bottom 90 percent of households rose about 4.7 percent.
Tax Cuts for the Wealthy
Finally, note that these tax hikes are merely redressing tax cuts that have brought taxes rates for the rich well below historic norms—at a time when we all need to pull together. As this chart from Andrew Sullivan’s blog over at The Atlantic shows, the surtax will simply take effective tax rates for the top 1 percent back to where they were in the mid-nineties—a time when the economy was strong.
Then came the Bush tax cuts, and a rising deficit. As Ron Pollack, Director of Families USA, and another member of the Washington Post panel points out: raising taxes on the richest households “is part of a sensible approach to ensuring that health care reform is deficit-neutral during the next ten years. Since this group enjoyed a significant tax reduction windfall during the last decade — and since this windfall played a big role in burgeoning federal deficits — it makes sense that this group bears some burden as part of the effort to secure America’s long-term economic future through health-care reform.”
Thanks Maggie-
Also I would be curious about what percentage of investments made by the rich to get richer were made in the highly profitable “disease care” industries.
The very rich have had their “run”. Time to rebalance.
Dr. Rick Lippin
Southampton,Pa
Excellent post, Maggie, but is interesting to me how little these fairly well-known facts enter into the debate. Any attempt to do so brings the disingenous cry of CLASS WARFARE! Many of those who make this cry have been successfully conducting it for several decades. So I suppose they’re correct — after all, they should know.
There is a very fundamental statistical problem with the the first graph. Succintly, the composition of U.S. households has changed from 1946 through 1976 and through 2006, due to marriage, divorce, and immigration rates.
the follow-on graphs have the same problem.
making any policy based on such a misleading representation of data is just plain wrong.
Although you make a great case arguing the rich do not pay a proportionate share of taxes, shouldn’t the focus be on whether taxing the rich to fund healthcare reform is a sustainable policy decision? Funding healthcare reform through taxes is a simple solution that removes emphasis from more pressing issues such as cost containment to go unaddressed. Certainly the rich can pay more in taxes, but doing so does not decrease future healthcare expenditures. In 10 years who will we tax to pay for health reform if we do not contain costs now?
So far, it looks to me like liberal democrats have only two ideas to expand health insurance coverage but won’t, according to the CBO, fundamentally reform the healthcare system in ways that save money or, at least, bend the growth curve. Their ideas are: tax the rich and squeeze provider payments. The latter has a long history of failure and the former is unlikely to raise anywhere near as much money as they think.
The arguments in the post are incomplete and misleading on several levels.
First, the data presented completely ignores state level taxation. In New Jersey, for example, we did not even have a state income tax prior to 1976, and we didn’t have a sales tax prior to 1966. Our top marginal state rate is currently 8.97% for income above $500K with a proposal on the table to raise it another 75 basis points. The tax was originally sold as a means to reduce very onerous property taxes which it did for about two years. However, since the early 1970’s, property taxes have approximately tracked general inflation while we now have the state income tax on top of it. Other large states like NY and CA have also seen state and local tax burdens rise over the years.
Second, while I’ve argued many times that I think the current 15% federal tax rate on capital gains and qualified dividends is too low, the current top marginal rate on ordinary income of 35% exceeds the 1986 Tax Reform Act top rate of 28% by 7 percentage points, and it is already scheduled to jump back up to the Clinton era top rate of 39.6% when the Bush tax cuts expire at the end of 2010. I also note that a material increase in the capital gains tax will, at the margin, reduce the realization of capital gains, in part, because of the rule that allows a step up in basis at death.
Third, according to Republican critics, many taxpayers affected by the top rate are business owners and entrepreneurs. People can argue about the impact of tax rates on these taxpayers’ ability and willingness to add to or reduce their companies’ headcount, but I think it is also important to note that they have lots of flexibility to manipulate and even hide income. That, of course, is not true for those of us who work for companies and have our salaries reported to the IRS on W-2 forms and our interest and dividend income reported on 1099 forms. The IRS is very good at matching documents to social security numbers but it’s not so good at finding hidden and unreported income. Taxpayers in a position to hide income range from independent retailers, wholesalers and distributors to construction company owners to owners of restaurants and software companies to doctors and lawyers. As an aside, this is also a problem with proposals to apply the social security payroll tax to all wages and to substitute a payroll tax to finance health insurance for the current premium based system.
Finally, the middle class, for their part, saw a significant shift in the composition of its income in the last 20-30 years from straight wages toward health insurance while payroll taxes also increased in real terms. The income statistics cited do not include the employer’s share of payroll taxes or the amounts paid by the employer for health insurance. Many unions, as they argue today, gave up or limited wage increases to maintain robust health insurance coverage. These are compensation dollars just as much as wages are and should be reported as such in the income distribution statistics.
So, the bottom line is that while the rich have gotten richer, the skewing of income distribution is not nearly as severe as this post, which cites a host of liberal sources, portrays it. A little more objectivity and balance is in order, I think.
“In recent years, just as in the 1920s, too much money was concentrated at the top, and not knowing what else to do with the money, the very wealthy went on a spending and investing spree. This meant that too many dollars were chasing too few things—in this case, mainly stocks and real estate—and prices levitated, creating bubbles.”
Wow. I did not know the housing bubble was created by the “mega-rich.” I thought it was from banks and pseudo-independent boards being pressured by Democrats to make loans to people who couldn’t afford them.
Maggie thinks its ok that a “modest” tax is placed on people who make money for health care. How about that “modest” tax increase that’s coming to help Obama fund his other agendas?
Enough modest increases add up and I will be damned if I end up paying for everyone else’s lives.
The so-called rich will see this coming and by their very nature will move, shift income, produce less, shelter, etc. to become “less rich.” Also, since the “rich” produce most tax revenue in this country, revenue streams will dry up, forcing the inevitable lowering of the bar on “rich.” Taxing the rich is always a great slogan but usually becomes taxing everybody. Do not ask for whom the taxman tolls. He tolls for thee.
If you want the wealthy to pay, tax WEALTH. This seems to be a tax on income. Income tax is regressive, compared with wealth tax.
Anyone with teenagers can attest to the fact that the middle class of today has many many more material things than we did as children. Something is askew in your analysis.
The question is misleading and a set-up for failure. “Taxes” all end up (pretty much, anyway) in the same (federal) place and then pay for all our federal programs. Raising a tax as part of health care plan just means raising federal revenue. The health care “plan” doesn’t CAUSE the need to raise taxes. We could just as well look at it this way: if we weren’t running two hugely expensive wars, we could afford national health care reform. So let’s raise taxes on the wealthy to pay for the wars, and use the money that SHOULD have been there for health care – for health care.
And yes, to provide basic services like national highways and national parks and national health care – we SHOULD move taxes on the wealthy a bit (at least) closer to what they were before Mr. Bush micro-sized them. It’s fair and right.
Everyone–
(and a P.S. to Christopher at the end)
Let me make a couple of points. First, in the U.S. over the past 30 years income has been redistributed upward through a combination of tax policy and stagnant wages for the middle class while executive and other salaries at the top spiraled.
This is a well-known fact. Literally hundreds of economists have written about the widening gaps. The only question is whether you think this is a problem.
In addition,
the stock market bubbles and the real estate bubbles brought great wealth to those who had enough money to make large investments–and who knew how to play the game: get in early, and get out when prices are high.
Insider selling of stocks tripled in the 12 months before the 2000 crash. By insider selling, I don’t mean selling on insider information, I mean people who were exectuives and manageres were selling because they knew their stock wasn’t worth that much.
I knew many people on Wall Street in the late 1990s who had taken much their own retirement money and all of their childrens’ college funds out of stocks. They knew that prices were too high. (Anyonoe who took a look at a chart of price-earnigns ratios for the S&P 500 could see that they were historically way way, way above the norm. It was only a matter of time until the market crashed. You could try to stay in until the very top , but there is a saying on Wall Street: “Pigs get fed; hogs get slaughtered.”
The people who got into the bull market early–in the 1980s were generally quite wealthy– the people who got in late (after 1995) were much smaller investors (middle class). This is always the case–in any bull market.
It becomes “the people’s market” in the final years. (This also happened in the late 60s, early 70s–before the devastating crash of 1973 to 1974)
So while some of the very wealthy people who got in in the 1980s lost money in 2000, what they lost was tiny compared to what they gained from 1982 to 2000.
Time was on their side.
Meanwhile, if you made most of your investments after 1995, your losses could easily have eaten up most of your gains (depending on how quickly you moved when the market began to fall.)
The real estate bubble began as very wealthy people paid higher and higher prices for real estate. In New York City an apartment that sold for $500,000 in 1985 was worth $3 million in 2006. (I know someone who bought for $500,0000 who was offered $3 million for the same apt. in 2006. It had not grown any bigger. The views had not changed. The location was the same.
There was no reason for the value of this apt. to increase six -fold–but it did. “Irrational exuberance” drove the price skyward. Wealthy people were becoming mega-wealthy. They had the money, so they spent it.
While $500,000 apts climbed to $3 million, $100,000 apts. became worth $500,000. And in the suburbs, houses that sold for $80,000 to $175,000 in the mid- eighties were fetching $300,000 to $800,000. (These are very rough approximations, but you get the idea.)
At this point, it was becoming very difficult for middle-income people and lower-middle-income poeople to find places to live. Upper-middle-income people (say a household earning $80,000 joint) also were having a hard time.
Enter the subprime mortgage. Eager to make deals, real estate brokers and mortgage brokers and bankers began pushing “sub-prime” mortgages– no money down, no income check, no asset check.
Anybody can get a mortage. Of course it’s variable rate–or its a baloon moortage–and in a few years your monthly payments will be a lot higher, but don’t worry, it will work out.
People get in over their heads– and the sub-prime mortgage metldown begins. Banks discover that they too are in over their heads . . .
None of this would have happened if prices hadn’t begun to spiral at the top. And that wouldn’t have happened if there hadn’t suddenly been so many millionaires out there– people who could pay $1 million, or $2 millino or $3 million for a home. If there hadn’t been so much wealth concentrated at the top, prices wouldn’t have moved too high too fast.
This is how the concentration of wealth creates bubbles.
For those of you who think the Democrats are trying finance health reform with higher taxes, I suggest you read the House bill. It is 1,000 pages but if I can take the time, you can too.
I admit I find it very aggravating when people like Barry say that the Democrats “won’t fundatmentally reform the system in ways that save money.”
Barry see pages 126 and following-of the bill here http://edlabor.house.gov/documents/111/pdf/publications/AAHCA-BillText-071409.pdf
-they are all about reforming Medicare giving the Secreatry of Health & Human Services the power to raise co-pays to steer patients away from over-priced,marginally effective treatments, giving the Secretary the power to adjust fees to account for geographic variations (i.e. high-spending regions) openign hte door for Medicare to change what it pays for, how it pays for it, and how care is delivered.
This is the structural reform that will bring savings.
The House bill makes it clear that the public sector option will follow Medicare’s reforms when the public sector plan becomes available at the end of 2013.
That gives Medicare over 3 years to work on squeezing out the waste.
As I have always said: when it comes to containing costs, Medicare reform will pave the way for healthcare reform.
In addition, the president just asked Congress to give MedPac the power to set physician’s and hospital fees. Jay Rockefeller’s bill (which Obama has endorsed) would put MedPac in charge of Medicare and let it implement its recommenations without going through Congress. As Peter Orszag said yesterday, “that’s the game-changer” when it comes to reining in heath care spending.
As anyone who reads this blog knows, MedPac’s recommendations are excellent. But the Bush administratoin would not let Medicare implement any of them. (McClellan wanted to.)
Finally, the notion that if you raise taxes on the rich by 1 1/2 percent, they’ll stop working, leave the country, etc. etc. is laughable. This idea comes from Reaganomics–a theory that was disproved long ago.
Finally, conservatives like to suggest that the very wealthy are the “most productive members of society” and if we raise their taxes, they’ll stop producing, stop having ingenious ideas, etc.
Who exactly are they thinking of? The Enron traders and executives who shut off the lights in California? The bankers who brought us the sub-prime meltdown? The Detroit exectuives who decided that as global demand for oil rose and supplies fell, it would be a bright idea to begin designing enormous, gas-guzzling cars? The Wall Street analysts who hyped stocks in the 1990s? The stock brokers who persuaded middle-class people to buy Internet stocks for their 401-ks?
The lawyers who made money on these deals?
The Goldman Sachs bankers who are cleaing up today? (See Paul Krugman’s NYT column today.)
Reserach shows that the best-paid CEOs are not the best managers–often they are the worst. Because they are greedy, they over-reach. Because they are anxious to see the value of their shares rise quickly, they fail to think long-term, and short-term thinking dooms their companies.
Christopher– I agree about taxing wealth–Americans are not used to that concept.
But I am sure that eventually Obama will get aroudn to the inheritance tax which should be much steeper on enormous estates.
See inheritance tax rates from the past.
When you talk about middle class, I doubt you’re talking about hte true middle class–peole on the 3rd step of a 5 step national income ladder.
These households have average (median) income of maybe $58,000—joint, before taxes.
Their children may appear to have more toys and clothing the past, but that is because these are very cheap items made in China and elsewhere and purchased at Wal-mart. The total value is not greater.
And the statsitical middle class is struggling to make mortgage or rent payments, to pay heating bills, and to try to save for college. . .
Matt–
Thanks for your comment.
If you read the House bill, you will find that it opens the door to enormous savings in the fees Medicare pays, what it pays for, and how healthcare is delivered.
These are the structural reforms that will rein in healthcare savings.
As Orszag said late yesterday, putting MedPac in charge of Medicare (and ultimately in charge of the public option) is the “game changer” that will squeeze the enormous waste out of our health care system. And Medicare has 3 1/2 years to experiment with how to do this before the admnistration rolls out universal healthcare at the end of 2013. (The subsidies and the public option don’t kick in until then.).
The tax hikes are only a part of the financing plan–not the whole plan.
And they are simply redressing the unaffordable tax cuts for the rich of recent years–something we needed to do anyway–bringing top tax rates back to where they were in 1995, when we had a much more stable economy. .
Interesting article in the NY Times about Massachusetts’s commission on payment reform which tries to tie a lot of the reform changes together. The gist of it is:
“Instead, primary care physicians, specialists and hospitals would group themselves into networks that would be responsible for a patient’s well-being and would be compensated with a flat monthly or annual fee known as a global payment.”
The actual recommendations are listed at the following link
http://www.mass.gov/Eeohhs2/docs/dhcfp/pc/Final_Report/Final_Report.pdf
Makes No Sense and Barry,
Makes No Sense:
You will end up paying for other people.
Obama won. And he has made it clear that wealthier Americans are going to have to help poorer Americans.
Obama believes strongly in the Judeo-Christian values that say that you are your brother’s keeper.
(I’m not religious, but I share these values as part of the 19th century humanism that I embrace. See George Eliot.)
Barry–
Your argument about the middle-class gaining so much in benefits that it really has been making economic progress is a lie disseminated by conservative think tanks.
You’re smart enough to look up the numbers, but let me just give you a quote from the Congressional Quarterly, March 2009:
“a bigger and bigger portion of economic growth has accrued to the wealthiest 1 percent, whether the measure is basic wages or total compensation, which includes the value of employee-sponsored and government benefits.”
Please stop repeating and spreading misinformation and distortions of fact on this blog. It’s very important to me that what people read here is accurate–which is why I provide numbers, sources and charts.
You suggest that I am using “liberal” sources.
In fact, my main source, the Center for Budget and Policy Priorities” is never identified as “a liberal think tank.”
It is always identified as a resarch gourp that focuses on fiscal policy, a leading think tank, etc.
Try Googling the name of the group, with a comma after it.
Then try goggling Cato, Heritage or some of the other places that make your arguments. They are always identified as “a conservative . . ” because they are driven by ideology–not ideas or facts.
“It is 1,000 pages but if I can take the time, you can too.”
Except that your job requires that you read it. I have a family to take care of and a full time job that is not related to health care policy in any way. The vast majority of people will not read it. Sadly, I bet not one single Congressman will have read it cover to cover, but will rely on briefings from staffers.
While don’t agree with a lot of you personal philosophy and political views, I really like this blog b/c you write well and you’re well informed (albeit biased, but who isn’t). I read this blog because I *can’t* read 1000s of pages of legal documents and studies. Plus, its a good balance to understand both sides of the argument.
“Who exactly are they thinking of? The Enron traders and executives who shut off the lights in California? The bankers …” Your list of demonized wealthy individuals contains people who all make WAY MORE than $250k. But a little class warfare makes your point and riles up the masses.
As for paying for the plan, the bulk of it comes from increasing taxes (i.e., $ the govt takes in) and reducing payouts. It would be wonderful if Medpac could actually improve the efficiency of health care delivery. I hope they make great strides in those efforts. But from what I hear from friends who are actually working (as in, daily, hands-on work) in health care (some of whom are specifically working in ‘continuous improvement’ groups in health systems) its a long long road, and we’re not going to get there soon. consequently, any savings derived from efficiency will not be funding the system to any practical extent. Saying medpac “will squeeze the enormous waste out of our health care system” in less than 10 yrs is akin to Jim Cramer saying the market will keep going up at 10%/yr – its irrationally optimistic.
Matt–
You make a good point:it’s part of my job to read the House bill–it’s not of part of your job.
I’m mainly frustrated by people who write as if they know what is in the bill–without reading it.
I’m afraid many journalists and bloggers who are writing about the bill haven’t read it.
I just spoke to White House budget director Peter Orszag’s office about the savings in the
House bill.
If I’m irrationally optimistic about MedPac savings, so is he.
He and I have both read the 400–500 pages or recommendations that MedPac issued in March and June of this year–and the 400-500 pages it issued hte year before, and the year before that.
So we both know what MedPac is recommending– and those recommendations are in the House Bill.
When Orszag ran CBO, hewrote extensively about MedPac’s reports and how much money could be saved by following their recommendations.
And Orszag is a hard-headed and brillian realist.
See his blog today on MedPac as a “game-changer”
http://www.omblog.gov.
And the administratin’s letter to Congress . .
I’ll be writing about all of this and the structural reforms in the House bill.
As for the people who earn more than $350,000, the fact is that the bulk of them are in finance, real estate and banking–that’s were most of the most profitable jobs are in our society.
A certain number of them are doctors–but that’s a pretty small percentage compared to the number in finance, real estate and banking. Some are corporate executives.
Unfortunately, in recent years, these sectors of the economoy have been corrupted in many ways. Much cooking of the books, gouging, etc.
The SEC wasn’t doing its job. Businesses were deregulated, meaning that companies like Enron were free do do as they pleased. (Most of what Enron did was legal.)
This, of couse, does not apply to all companies or everyone in these companies.
But I would point out that Warren Buffet has had a very hard time finding stocks to buy over the last 12 to 15 years in part because he takes a close look at management –and has had a hard time finding honest management.
I cover Wall Street for Barron’s as senior editor for 12 years. There are honest people on Wall Street–but I’m afraid they are the exception. Most just look the other way–or are actively engaged in deception.
(See my book Bull! — a history of the 1980s and 1990s. Buffet actually recommended it in Berkshire Hathaway’s annual report. And last time I checked, he wasn’t a socialist. I’m afraid my assessment of what was going on is pretty accurate.
Finally, when I think about the people who make less than $350,000 a year, I think about some of the most productive people in our society–productive because they are investing their talents in human capital–helping people
Teachers, nurses, primary care docs, pediatricaisn, palliative care specailists, environmentalists, many scientis, writers, jouranlists and film-makers who are “truth-tellers”–adding to our knoweldge of the world–they all make less than $350,000.
There may be some self-selection involved when people choose to go for the Mega-bucks in those sectors of the economoy where the financial rewards are highest.
Perhaps money is just too important to them, and that’s why so many wind up doing things that actually hurt the economy and society.
I don’t think most of them are “bad” or “evil” people–but somehow, when they get into these careers, they check their conscience at the door.
It’s part of the culture in these sectors. And before long, you begin to believe it’s okay because hey, everyone is doing it–telling the home-buyer not to worry, this house really is worth twice what it was worth 4 years ago, etc. . .
NG–
What they are talking about in Mass. is a very good idea.
But it will take years and years to accomplish.
You can’t just herd doctors and hosptials into accountable care organizations and expect them to play nicely together.
Especially not in Massachusetts where you are talking about physicians with enormous egos, many of whom do NOT want anyone trying to tell them what to do and hospitals that are very powerful and often arrogant institutions that are accusomted to competing–not collaborating.
This will be much easier to accomplish in the NorthWest. Or Upper New England (Maine, NH, VT).
Howard Dean territory. Dartmouth territory.
The House bill makes provisions for Medicare to
encourage docs to go into accountable care organizations (financial carrots), and I expect to see more of this happening over the next 4 to 8 years.
But it means a huge cultural change. It means, among other things, that we have to change the way we train medical students.
(Collaboration, working together as a team, not competition.)
And it means that we will have to wait for some of the dinosaurs to retire.
REASONED OPPOSITION BY C.B.O.
http://www.washingtonpost.com/wp-dyn/content/article/2009/07/16/AR2009071602242.html?nav=hcmodule
“Congress’s chief budget analyst delivered a devastating assessment yesterday of the health-care proposals drafted by congressional Democrats, fueling an insurrection among fiscal conservatives in the House and pushing negotiators in the Senate to redouble efforts to draw up a new plan that more effectively restrains federal spending.”
How inconvenient.
Ms. Maher — will your income is next on MoveOn.org’s hit-list? Watch your back.
Or — perhaps those working 90 hours/week trying to build business in the insane Obama economy will just give up.
Why work so hard, if all you’re going to get is a kick in the teeth?
Let the IRS go after Maggie and her friends.
I’m convinced. Why bother creating anything great, if higher taxes are the reward? Excellent.
We don’t need to go into Sherwood Forrest to solve the healthcare problem. Lets not conflate the inequality issue which has been with us since Biblical Times, and the Healthcare crisis, which is of slightly latter vingage.
The more everyone feels the pain of medical waste, the quicker this will be addressed. Shielding 99% of the population from this folly is conterproductive.
“a bigger and bigger portion of economic growth has accrued to the wealthiest 1 percent, whether the measure is basic wages or total compensation, which includes the value of employee-sponsored and government benefits.”
I wasn’t arguing that the top 1% did not gain ground relative to the rest of the population in recent years. I was arguing that compensation growth among the broad middle class in the last 25 years or so was considerably greater than the growth in their wage income alone. The sharp increase in the growth of the cost of health insurance nominally paid by the employer is, of course, the reason for this. It’s misleading and overstates the case to look at wages alone in assessing the growth of pay when the value of benefits, not just health insurance, is such an important component of compensation.
While I agree that the top 1% did extraordinarily well financially during the last 20-25 years, I don’t think one could argue that it caused the rest of the population to somehow do worse than they would have if the people at the top had done less well. We had a tangible asset bubble (everything from commodities like gold, silver and oil to collectibles) in 1979-1980 when inflation looked like it was getting out of control. The recent real estate bubble was driven, I think, by one key idea that was clearly wrong, and most people, especially the banks but most ordinary Americans as well should have known was wrong before the fact. That idea is that home prices would continue to appreciate pretty much indefinitely. Banks thought that even if the homeowner defaulted, they could foreclose, sell the house, repay their mortgage loan, and have money left over for the homeowner. Homeowners, including investors who had no intention of occupying the house, bought into the concept as well. Politicians encouraged the loosening of lending standards so more of the population could become homeowners. In short, there was plenty of blame to go around.
In the manufacturing sector, huge advances in productivity during the last 30-35 years made it possible to produce a car or a ton of steel with far fewer man-hours. Many of the jobs that remained required less skill than previously because many of those skills were built into the computer controlled equipment that wasn’t available previously. Lots of people in foreign countries also became capable of producing these products because the equipment, in effect, de-skilled the jobs. The economy gradually shifted from an industrial base to a knowledge base. Think computer programmers, software developers, communications experts. Education and healthcare became the new growth industries. The largest private employer in Philadelphia, for example, is the University of Pennsylvania while the largest in Miami is the University of Miami. These two industries are now much more important than steel in Pittsburgh. It’s unfortunate but the economic opportunities for people with just a high school education or less are far more limited than they were 50 years ago. That’s nobody’s fault. It’s just the way the economy evolved.
Finally, I want to make a point about healthcare reform. The fact that the various committees in Congress working on the main healthcare reform effort did not include either tort reform or giving MedPAC the authority to drive payment policy suggests that there is a lack of courage to make the tough choices. The message I take away is let’s do the (relatively) easy stuff – expand coverage, provide subsidies, pass community rating guaranteed issue, mandate that employers provide insurance for their people or pay into a fund and require individuals to have insurance or pay a fine. In short, cover the uninsured while pouring more money into the same failed healthcare delivery system we have today. After we do that, maybe we will get around to the heavy lifting of cutting costs via tort reform to reduce defensive medicine and payment reform to reduce cost-ineffective care. However, Congress will have already provided the good stuff to the people so it will be even harder to do the things that will reduce revenue for providers, make people pay more out of pocket if they want cost ineffective treatments, and, perhaps, limit choices. With this strategy, I certainly wouldn’t nominate anyone in Congress or the Administration for a Profile in Courage award.
Barry–
Barry-
I am glad that you acknowledge that the top 1% took the lion’s share of the gains made in recent years.
And of course, they took that away from the middle class. Corporate gains went to shareholders, not to employees.
During that period, Morgan Stanley economist Steve _______ argued, forcefully, that corporations should be sharing more of their record profits with their workers.
But they didn’t.
Since the 1980s, corporations had been down-sizing, and workers were “working scared.” Afraid of being laid off, they were not going to demand raises. Moreover, Ronald Reagan had, for all intents and purposes, broken the unions during the air controllers’ strike. There was no one to stand up for workers in the private sector.
Executives paid themselves handsomely (stock options) and shareholders wealthy enough to own large amounts of stock grew even wealthier.
But they represnted a small percentage of Americans at the very top of the wealth and income ladder.
Even at the end, only 1/2 of all Americans owned any stock or stock mutual funds.. Middle-class shareholders owned small amounts of stock–and got in very late.
The wealthiest 5% owned the lion’s share of stock– and they took the lion’s share of profits and growth. (When lion’s devour a carcass, they lick the bones nearly clean, leaving very little behind for other hungry animals–that’s where the phrase comes from.)
And, Barry, Congress cannot make putting MedPac in charge of Medicare part of Health Care Reform legislation.
That would doom health care reform.
Can you imagine what conservatives would do with that plank in the legislation? “Seniors, Washington bureaucrats are going to have complete control over what care you can and cannot afford–raising co-pays on some treatments that THEY say are not appropriate.”
(They won’t mention that “approrpiate” is basd on medical evidence, as determined by a panel of physicians, reserachers, nurses and patient advocates.)
The conservatives would say: “Doctors: Washington bureaucrats would have complete control over what you are paid.”
As a practical matter, putting MedPac in charge must be separate legislation. We cannot risk the whole idea of health reform by putting it in the broad health care bill. l.
The fact that Obama has endorsed Jay Rockefeller’s serparate legilsation that puts MedPac in charge is very gutsy. The letter that the administartion just wrote to Congress about putting MedPac in charge of setting Medicare providers’ fees demonstrates great political will.
(See Peter Orszag’s blog today http://www.omblog.org.)
I have the letter and the legislation attached to it. I’ll be writing about it this week-end.
I talked to Orszag’s office today. They gave me this info.
Orszag plans to do what he always planned to do.
In the news coference late today Obama made it very clear that he is not backing down in any way.
In terms of what the CBO said yesterday,and what that means–the media simply got the story wrong. As far as I can tell, very, very few reporters actually read the 1000 page House bill.
And they don’t understand the implications of putting MedPac in charge.
Billy–
Truly creative people (and I have known many) don’t work for the money–or the money after taxes.
The work because they love the work for its own sake.
This may be hard for you to believe, but this is how the the creative and very intelligent people that I have ever known live.
At present, I am enjoying my work more than ever before–and earning significantly less than I earned 5 or 10 years ago.
Please, hide the truth. Looking at that graph made my eyes bleed.
http://www.omblog.GOV
“Truly creative people (and I have known many) don’t work for the money–or the money after taxes.
They work because they love the work for its own sake.”
Maggie,
I smiled when I read this as it reminds me of my wife. She enjoys her work as a software developer, but I often kid her that she’s working more for intellectual stimulation than for money. When her income is stacked on top of mine, more than half of it goes for federal and state taxes even excluding the employer’s share of FICA taxes. Even she has her limit though, especially after she recently became eligible to collect Social Security. After the Bush tax cuts are allowed to expire, she’ll probably be ready to pack it in. If the income tax surcharge on the top two percent is added to help finance health insurance reform, her retirement will be a virtual certainty and so probably will mine even though I enjoy my work as well. We’ve always lived modestly and we no longer have to work. While some people in Congress may think that high income people can always pay more no matter how much they are already paying, they forget that many of them have options including working less, retiring, and, in the case of business owners and the self-employed, hiding (more of their) income. The political class will likely be surprised to see the magnitude of the decline in the population of “golden geese.”
Barry–
I’m sure you mean well, but I feel a bit sorry for your wife.
I would hate to be married to a man who “kidded me” about how little I earned doing something I love.
If your wife retires, I hope she finds something she enjoys as much as her current work. So many people are so very unhappy when they retire . .
Maggie,
My wife makes the same point that I do about how much of her and our income gets paid out in federal, state and local taxes. She tells her friends and others that while she enjoys her work, she is not willing to do it for nothing or next to nothing. There is associated stress, there’s limited vacation time and there are other things that she and I would like to have more time for as well. She works for a small company of less than 30 people which is under economic stress in this economy. There haven’t been raises in two years, and she gets no benefits aside from paid vacation. They don’t pay for her health insurance and there is no 401-K match. She doesn’t appreciate the prospect of higher federal taxes any more than I do. Fortunately for us, we are both approaching the normal retirement age anyway. At the margin, though, if the tax burden were at least stable, we might be inclined to work somewhat longer.
As far as I know we have a Federal Income Tax not a Federal Wealth Tax. A family with an earned income of $300,000.00 paids more taxes than one with a $10,000,000.00 investment in municipal bonds. Who is the wealthier? Who is being tax the most? Stop propagating misinformation! we do not tax the wealthies americans only the high income americans!
Teobaldo–
On HealthBeat, we are pretty careful about facts and don’t spread misinforamtion.
As a group, Americans with the highest incomes are also the weathiest.
2007 Federal Reserve numbers show that families who stand on the middle-rung of a 5-rung net worth ladder, are also earning median income ($56,000), while those in the top 10% when it comes to net worth have a median income of $158,000 and a mean income of $347,000 (with the best paid in the group pulling the mean average way up.)
Those in the top 10 percent in terms of income had median net worth of $1.2 millio and mean net work of $3.3 million.
So for practical purposes, “high-income” and “wealthiest” can be used interchangeably. The two groups overlap.
This should come as no surprise.
And while the income tax taxes only incomem (including capital gains and dividends, but not municipal bonds because we want to encourage the wealthy to provide capital so that cities can operate and build infrasture)
we also tax wealth in the form of property taxes, transfer taxes (when properties are bought and sold properties are inheritance taxes.
Sales taxes, while not terribly progressive also tax wealth because the wealthy consume (buy) far more than the rest of us, and buy many more very expensive items.
Maggie,
There maybe a a high correlation between high reported income and wealth but not between their wealth and the taxes they pay. Also these taxes only apply to reported income and do not affect the underground economy. That is why I prefer the VAT Tax and a bill that contains the essentials described in your previous blogs. This bill does not have them!
Off the topic of Taxes and more squarely on the topic of Health Care is an article that appeared in the New York Times Magazine July 19th titled “Why We Must Ration Health Care”.
In it the author (Peter Singer) makes very good points about the costs of health care and rationing – much better thought out than the “It’s high quality if it’s effective” and “we’ll just get rid of the ineffective test/treatments” philosophy that has been proposed here previously.
I recommend it to everyone.
$500,000 and $1,000,000 can have their taxes but why pack the $5 million, $10 million or $100 million in the same tax range. There should be some relief for those making $1 million vs 10 or 100 Million. If they want to play it fair, then play it really fair.
Legacy Flyer,
The UCSF’s Dr. Bob Wachter has a terrific post on the subject raised in Singer’s article over on The Healthcare Blog titled “A Brief History of the R Word.” The comment section is pretty interesting as well.
Barry & Legacy–
Yes, Wacther’s piece is excellent. I also agree with him that we are not going to go the route of explicitly rationing end-of-life care.
This isn’t a utliitarian society– and in some ways this is a good thing. Utlitarianism is limited and somewhat literal-minded world-view. (Though I also like Singer; some of his past work on ethcis is brililantly provocative)
We will instead, as Reinharddt puts it “muddle along elegantly.”
The good news is that there is so much waste in our system– so much low-hanging fruit that is merely profit-driven (as Atul Gawande describes) — that we really don’t need to make these extremely hard decisions.
My one concern about Singer’s piece is that in many minds it raises the specter of the “government playing god”–providing ammunitions for fear-mongers who oppose reform.
If we want reform we should get on with the practical politics of accomplishing it, and leave hypothetical philosophical discussions for another time.
These points to an interesting article in findrxonline where they talk about this subject it is necessary to inform the community.
It is ultimately the patient’s responsibility to use narcotics responsibly.
A few years ago, narcotics were only prescribed after surgery, severe trauma, or for terminal cancer because of a concern over the possibility of addiction. Recently, they have been cautiously prescribed to treat moderate to severe non-malignant chronic pain in conjunction with other modalities such as physical therapy, cortisone and trigger point injections, muscle stretching, meditation, or aqua therapy. Unfortunately, the upsurge of narcotics as medical treatment also increased associated cases of abuse and addiction.
Derived from either opium (made from poppy plants) or similar synthetic compounds, narcotics not only block pain signals and reduce pain, but they affect other neurotransmitters, which can cause addiction. When taken for short periods, only minor side effects such as nausea, constipation, sedation and unclear thinking are noted.
The “wealthiest” people in the United States had it prettly good during the last eight years in terms of tax policy. Families USA executive director Ron Pollack said, “Since this group enjoyed a significant tax reduction windfull during the last decade, and since this windfall played a big role in burgeoning federal deficits, it makes sense that this group bears some burden as part of the effort to secure America’s long-term economic future through health care reform.”
God! This is a tax on less than 1.2 % of the wealthiest people in the United States (98.8% will be totally unaffected by the surcharge). And this select minority have benefited from years of skyrocketing income and a falling effective tax rate.
According to Citizens for Tax Justice, between 1979 and 2006, the inflation-adjusted after-tax income of the top 1% of households increased by 256%, compared to 21% for families in the middle income quintile. Meanwhile, over the ten year window from 2001-2010, the Bush tax cuts gave the richest 1% of Americans about $715 billion in tax breaks. This comes out to about $518,000 per household over ten years or about $51,800 per year.
So the surcharge would require the richest 1% to give back some of the tax cuts they received over the 2001-2010 period. Sen. Bernie Sanders said, “It certainly is okay for me to tell my friends on Wall Street, who just got a bonus of $600,000 that they’re going to pay more in taxes so that we can lower health care costs in America,” including them!
The surcharge won’t affect small businesses. According to both the Joint Tax Committee on Taxation and the Tax Policy Center, 96% of taxpayers with business income would not owe the surcharge. And according to the Center on Budget and Policy Priorities, the 4% of remaining “small” businesses affected by the surcharge include taxpayers that “stretch” the definition of the term, including partners in large law and accounting firms and investors who have stakes in Wall Street investment partnerships.
In the House’s health care legislation, small businesses are exempt from a lot of the penalties. They are given tax credits so they’re able to hire and get people healthcare.
As the wife of an extremely hard-working and caring orthopaedic surgeon who is in the business of putting peoples fingers and hands back together, I resent the idea a government panel telling my husband what he can earn. The hours and his expertise that he puts into his day are mind boggling. And when the day is done, his patients are happy and able to resume their jobs/lives because of his knowledge and honest approach and pure caring. Yes, he makes a good living, but it’s not all from patient care. He has made smart investments over the years and owns his building. His practice employs 300 happy people, who are given very nice health benefits.
Please remember these highly trained physicians and their years of sacrifice and training when espousing your views on what they should make. I’m lucky to know many hard working and selfless physicians and not a one of them got into medicine to make money. Not one. Do they earn good incomes? Yes, most of them do, but only after spending years paying off loans. My husband didn’t break even until he was in his 40’s. And I won’t even mention the amount of money he pays a year in malpractice insurance, which all goes into this equation, folks. Is anyone talking of tort reform, or of limiting lawyers’ incomes? I haven’t heard of any and I listen closely! Can we be honest and bring lawyers into this conversation? Is this because most of the government “experts” on healthcare are lawyers? Don’t get me wrong, I have lawyers in the family as well, but they agree with me. Tort reform is needed and any talk of healthcare reform without tort reform is laughable.
McDonald’s,, Gregory and Brenda
McDonald’s– It is not “ultimately the patient’s responsiblity to use narcotics responsiblly.”
It is the physician’s responsibility to know how to wean a patient off narcotics when he no longer needs them.
There is a science to this–a science that shoudl be taught in med school.
This is one reason why I believe a course in palliative care should be a requirement.
Just the other day, I was talking to a someone who talked about how few physicians know how to “wean people off”.
I once knew a physician who became addicted while being treated for cancer.
Her life was ruined. For years, she could not get off the drugs. She lost her license, her family and her life.
This doesn’t mean we shouldn’t give patients adequate pain-killers. We absolutely should.
But then the hospital and physician have a responsbilty to make sure that the patient is weaned off. I would think this should happen before the patient leaves the hospital.
Gregory–
Yes– and thanks for the facts.
Brenda–
No one is talking about reducing your husband’s investment income.
People are simply suggesting that we over-pay for some ortohpetdi surgery.
Fees are set based on what it costs the doctor: the amount of time it takes him to perform the procedure; the amount of mental effort involved, what it costs him in terms of stress and phyical effort, how many years of training it took him to learn how to do this.
Nowhere is “benefit to the patient” factored into the equation.
Now Medicare is going to take that into acccount. Many orthopedic surgeries are not necessary–some do more harm than good. (Here I’m thinking particularly of some hip and knee surgieres. Some patients would be better off with physical therapy or other treatments.
Comparative effectiveness reasearch will be used to deicide which treatments work best for which patients–and Medicare will pay more for the most effective treatments and raise co-pays and lower fees for less effective treatments.
Since your husband isn’t “money-driven” I doubt he will object to seeing physicians and patients steered to the most effective treatments.
And since, these days, no physician can know everything he needs to know–even within his speciality– I’m sure your husband may learn something from the guidelines.
(Doctors who think they have nothing to learn are self-deluded–and dangerous.)
Maggie,
Your idea sounds all well and good, but you need to take a look at the bigger picture.
Putting a tax base on the highest 1% or 0.5% or 0.1% of earners is a very narrow non-sustainable tax base during bad economic times.
California found out this year that it “feels good” to get the vast majority of your tax revenue from rich people but when economic times change and the number of rich people changes by just a few percentage points, it is absolutely DEVASTATING to tax revenues.
Instead of limiting the taxes to just the top 1% you need a broader tax base so that revenues dont plummet in bad economic times. I suggest creating a tax structure that is heavily weighted against hte rich but that also includes a small floating tax on the middle class. That way when you have another economic downturn and the number of rich people drops off you still have some reserve funded by the huge middle class.