How Can We Fund Healthcare and Other Human Needs?
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Why are new federal revenues needed? What taxes are being considered to fund health care reform (and other needs)? What would be most fair? What would make the most sense?
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How Can We Fund Healthcare and Other Human Needs?
- 1. How Can We Fund Health Care and Other Human Needs? August, 2009 Public Policy and Education Fund, www.ppefny.org Fiscal Policy Institute, www.fiscalpolicy.org New Yorkers for Fiscal Fairness, www.abetterchoiceforny.org
- 6. Where Do Our Federal Tax Dollars Really Go To? Source: Congressional Budget Office, 2008.
- 18. How Do Congress and the President Propose to Pay for Health Care? Wealthy taxpayers who itemize Limiting Itemized Deduction (home mortgage, interest, etc.) Obama Administration (budget proposal) Consumers Increase “Sin” taxes (alcohol, sweets, etc.) Senate (under consideration) Workers Tax Employee Health Benefits Senate (under consideration) Individuals who make over $280,000; families who make over $350,000 Income Tax Surcharge House (proposed – HR 3200) Who does it effect: What: Who:
- 25. Proposals for Funding Health Care: Progressive or Regressive? **Amount all proposals would raise: $1.3 to $1.6 trillion (only $500 billion needed)** Obama (budget proposal) Senate (under consideration) Senate (under consideration) House (proposed – HR 3200) Who Limiting Itemized Deduction (home mortgage, interest, etc.) Increase “Sin” Taxes (alcohol, sweets, etc.) Tax Employee Health Benefits Income Tax Surcharge What Progressive $260 billion Regressive $112 billion Depends $354-$722 billion Progressive $543 billion Type of tax; amount it raises
Editor's Notes
- Script: This portion of the program addresses another major issue that’s critical in the last stages of the health care debate: how do we pay for health care? A number of different taxes are being considered to fund health care in Washington. Each has different impacts on different sectors of our society – the poor, the middle class, and business. We’ve got to be aware of these impacts so that we all – as community members, and as organizational leaders – can intelligently participate in and impact the debate. But the question is broader than funding health care. It’s not just the future of health care that’s at stake – as important as that question is. Getting us out of the current “great recession” and rebuilding America’s economy and creating shared prosperity requires us to protect important public programs, and make new investments – yes, in health care – but also in such areas as education and clean energy. And we ultimately have to address the federal deficit in the medium and long term. So the real question is how to fund health care and other human needs on the federal level so that we can build a better community
- Script: In order to get to the question I just mentioned: how do we fund health care and other human needs so that we can build a better community, we have to briefly discuss the mess our economy is in today, and how we got there. In a moment, we’ll discuss the Bush tax cuts, and how they favored the wealthy over the rest of us, while neglecting our most urgent domestic priorities like health care and education. That’s the first question on the slide you see: “Why are new revenues needed?” Then we can be in a position to discuss the second question: “How do we fund health care reform?” Although our major focus in that section will be proposals to fund health care, this will give everyone a sense of the issues at stake in the next coming fight – over the 2010 federal budget. (Just for your information, the 2010 federal budget year begins in October of 2009 , so we can expect to begin to face this issue, next month – in September – just as the health care fight heats up!) And, as you can see from the slide – the issue in funding health care is not whether to raise revenues – we must – it’s what would be the most fair and make the most sense!
- Script: In the earlier segment of this program [e.g., the first PowerPoint], we discussed how critical health care reform is: the increasing costs of health care and the consequences: even for those who are insured. We won’t go through that again. No one doubts that providing quality affordable health care for all is going to cost a lot – there’s no escaping that fact. How much will health care reform cost in the first ten years? (That’s the period Congress generally uses to determine costs for federal programs, so we’ll use it here.) The Congressional Budget office (the “CBO”) – the nonpartisan arm of Congress that’s relied on to do cost estimates of legislation -- estimates that the Senate HELP bill will cost a little over $600 billion over ten years but the House bill will cost about $1 trillion over 10 years: around $100 billion in new federal expenditures each year. Even for the federal government – that’s a lot of money! And incidentally, those of us who care deeply about health care reform – and I’m assuming that’s everyone in this room! – should be hoping that the largest House figure of a trillion dollars wins out. The Senate bill costs less because it provides less benefits in terms of subsidies for individuals and businesses to purchase health care than the House bill. The trade off is between better health care, or more precisely more AFFORDABLE health care benefits, and a bit more in taxes for those who can afford it. Without adequate funding, we’re either going to have to subsidize less people or give people fewer benefits, or a combination of both of these. We think after this workshop you’ll agree if you don’t already that more taxes for those who can afford it is better than health care legislation that doesn’t address the fact that so many of us can’t afford our health coverage.
- Script: It’s clear that getting savings out of the health care system is a piece of the solution. As the President has reminded us again and again, health care costs are spiraling ever upward, and if we don’t get them under control, our economy faces collapse. The House and Senate bills both have made proposals to save money from the current health care system through steps like use of standard electronic transactions, restructuring payments to costly Medicare Advantage plans, and improving primary care. And some changes – like payments to Medicare Advantage plans – get at the waste in the system, and clearly therefore make sense by anyone’s standards. It’s well documented that the Medicare Advantage program – which involves payments to private insurance companies – costs for more than if administered by the government. Other changes, without doubt, will hurt some providers like hospitals, and insurance companies, and should be looked at carefully. As you can see from the slide, the House bill expects to generate $500 billion in savings over 10 years. But the bottom line is that savings aren’t enough -- we need to raise federal revenues for the other half trillion dollars. If we want health care for all at an affordable price – we have to pay for it! The questions are: what kind of taxes and who should pay them? Additions: Every effort should be made to avoid getting into arguments about which health care cuts are good and which aren’t. Keep circling back to the point that we’re here to discuss revenues for the huge proportion of the trillion dollars that can’t be funded by health care cuts.
- Script: And we don’t need revenues just for health care. Just two statistics are enough to paint the picture: -New York had an unemployment rate of 8.7% as of June. -Nearly 1 in 5 young adults are unemployed nationally. We could have come up with similar statistics showing the great needs in our state and nation for adequate housing, environmental clean-up, road repairs and countless other community needs. You can’t get around it: reversing the pattern of neglecting these needs under the past administration and even before that will take additional federal dollars. Given the state of the NYS economy, the federal government has got to provide a good chunk of the funding: in recent years, at least 30% of state funding has come from the feds – and often a lot more.
- Script: As shown by this chart, roughly 70% of the federal budget is spent on an array of programs that are critical to our communities. For example: -one-fifth of the budget goes for Medicare, Medicaid and “S-CHIP” (the children's health insurance program) [light blue wedge] -one-fifth goes for Social Security [dark orange wedge] -11 percent goes for unemployment insurance, child tax credits, food stamps and other assistance [light orange wedge] Many of us are concerned about the defense budget, but even that’s only a fifth of our federal dollars. [dark blue wedge] The point is that waste is not the issue: we have to develop adequate revenues for our most critical needs as a nation.
- Script: We need to remind ourselves and our neighbors that the over 30% we receive from federal programs helps every one of us: it builds our roads and infrastructure like bridges, educates our children, provides us with low-cost loans for college and trade schools, funds the cleaning up of toxic waste sites, funds medical research, pays for after-school programs so that our kids are kept safe during the critical 3-6 PM period, and much more. In fact, virtually every thing we care about is funded by the federal government – sometimes through grants to the state and to local government. Many of these vital programs were cut, or kept at their previous funding levels during the Bush years. As a result, many local programs were cut, resulting in state and local government having to pick up the tab. [If there’s enough time, you can ask the audience to mention federally-funded programs that have been cut in their community.] If we want our economy to revive and our quality of life not to suffer further, we have to start increasing funding to vital human needs programs.
- Script: Contrary to a popular myth, investing in quality programs works. Early childhood programs – aimed at kids before they enter the regular school program – is a great example of that. Study after study has shown that: [read slide.] The key is to talk to our state and local officials to make sure they use the federal monies effectively – not to cut these vital programs.
- Script: The same holds for health care – where we put the money matters! The current health care bills all place a greater emphasis than at present on things like primary care and prevention and wellness strategies rather than putting the bulk of our dollars on expensive medical technologies. Expanding coverage to millions of additional Americans will also save huge amounts of money for the health care system in the long run.
- Script: Almost every day in the papers, we all read about the federal deficit – between one and two trillion dollars this year. As scary as these numbers seem, most economists tell us – believe it or not -- that the short term increase in the deficits is not the real problem. Let’s all remember that during the Clinton years, the government had a surplus for a short period. Economists like Nobel-prize winner and NY Times columnist Paul Krugman say we should expect to see large increases in the federal deficit during a huge economic downturn like we’re now experiencing: its actually dangerous to the economy to make cuts at a time like this. The other main factor in the huge current federal deficit of well over a trillion dollars is that Congress passed several programs to try to jumpstart the economy. The programs provided through the $700 billion economic recovery package are definitely expensive, but they’re already showing signs of causing economic activity to pick up. Even more importantly, the emergency legislation passed under President Obama won’t impact on the federal deficit numbers after 2011. In other words, the huge size of the deficit this year shouldn’t affect much what actions we take as to health care today. This chart is in our presentation because it shows the factors that contributed to the deficits in recent years that we can really control . We often hear the deficit was caused by “excessive spending.” Well, while spending increases on domestic programs did play some role – for example, the new prescription drug benefit contributed 3% to the deficit and “other entitlement increases” contributed 7%. The real big numbers, however, are the 34% for defense and security increases, including the wars in Iraq and Afghanistan, and most importantly the Bush tax cuts. If you take one statistic away from this presentation, it should be that the Bush tax cuts caused nearly half the deficits the U.S. faced from 2001 to 2008. [dark blue wedge]. What this means is that we’ve got to address the Bush tax cuts if we’re going to fund health care and other urgent human needs without increasing the deficit over the next ten years.
- Script: As this slide shows, the Bush tax cuts have cost the U.S. Treasury about $2.5 trillion dollars. In determining whether to keep these cuts, let’s look at who benefited from these cuts.
- Script: [read back slide. You may want to ask the audience: “How many people here received a check of $52,000 in tax cuts from George Bush – raise your hand!”]
- Script: [Read back slide.] Add: “The $655 check the average middle income person received each year didn’t buy much, right?” And we paid a lot of that back anyway in the form of increased state and local taxes, given that state and local governments had to raise taxes or avoid cutting taxes to fund some of the programs that the federal government cut in the Bush years.
- Script: As this slide shows, the poorest people in the income scale did the worst under the Bush tax cuts. The bottom 20% of the income scale – those making less than $19,000 a year -- received just 1% of the total tax cuts – an average of just $80 a year. Once again, that’s compared to the $52,000 check each person making close to $500,000 a year received each year.
- Script: It’s clear we can’t continue the backwards policies of the Bush administration – failure to fund programs critical to New York families, while running up debt due to tax cuts targeted at the wealthiest Americans. This slide describes the tax principles developed by a coalition of progressive organizations in Washington. [Go through slide text.]
- Script: The best way to make taxes fair – the last principle on the previous slide – is through progressive taxation. A tax is progressive if the more you earn, the higher percentage of your earnings – your tax rate – you pay. The classic example of a progressive tax is income tax: wealthier people don’t just pay more taxes in absolute numbers, but they pay a higher percentage of each dollar they earn than poor or middle class people. Sales taxes are regressive – the opposite of progressive: the less money you earn, the higher the percentage of your income you pay in taxes. Let’s explain this with a simple examples. Say the sales tax is 8%. So for a $10,000 car, the sales tax would be $800. Following me so far? If a poor person buys that $10,000 car, the $800 sales tax alone is 8% of his annual income of $10,000. However, if a relatively wealthy person making $100,000 buys the same $10,000 car, she pays 0.8% - less than 1% - of her income in taxes. Therefore, the sales tax on the car is regressive. There are a lot of good arguments for progressive taxation, including the basic idea of fairness – the rich can afford to pay a little more for the benefits they receive from government, including parks, a clean environment, and the economic benefits from good roads and bridges. Progressive taxation also tends to discourage big disparities in wealth and help the poor rise up the economic scale by taxing them less. These reasons may explain way the public overwhelmingly supports progressive taxation in poll after poll. Additions: Example of polls: April 2009 NYT/CBS Poll: 74% supported Obama’s proposal to increase taxes on people making over $250,000 a year.
- Script: Here’s a basic summary of some of the major proposals to fund health care by the key parties in the health care fight – the House of Representatives, the Senate, and President Obama. This chart shows, for each of the 4 proposals, who proposes the tax (first column), the name of the tax (2d column), and who the is tax imposed on – a big factor in determining whether the tax is fair. [Briefly read the chart, item by item, mentioning as follows:] The House tax proposal, the income tax surcharge, is in the so-called “tri-committee” bill, HR3200. The proposal to tax employee health benefits and various proposals to increase so call “sin” taxes are not in any bill yet. The Senate Finance Committee has floated these proposals in a policy paper available to the public, and in various statements to the press. They will eventually put the proposals they do select to push in bill language. Right now, we don’t know what proposals they’ll ultimately select, but its important that we react to them as we see them, because Senate Finance will probably be the key party that determines the position of the Senate on taxes. Finally, President Obama has included the proposal to limit itemized deductions in the federal budget for the year that begins on October 1 st . Of course, the deal reached on health care will affect whether this proposal will remain in the final budget that passes the Congress.
- Script: The way the House in HR3200 proposes to fund health care – other than the roughly $500 billion in savings in the bill – is through increasing taxes on the richest Americans. Remember, we learned earlier that the richest 1% of Americans make about $500,000 a year or more. Keep in mind this is a tax on your income , not your wealth or assets. So if you own a $350,000 house or have a business with a value of $350,000, that doesn’t mean you’re going to be subject to this proposed tax: The income tax surcharge would begin for couples that make over $350,000 and single people who make over $280,000. As you can see, the tax gets higher the richer you are: For example, people whose adjusted gross income or AGI – for simplicity, let’s just say income – is over $280,000 for individuals or $350,000 for couples, you have to pay 1% of any amount you make over that figure. Again, the surcharge is not 1% of your income of $350,000. If you make $360,000, for example, you pay 1% on the $10,000 in income over $350,000. As you can see, the tax increases a lot for people really rich. For example, if you make $1.1 million, you pay a 5.4% on the $100,000 you make that’s over a $1 million if you’re a couple. This is a progressive tax, because the more you make, the higher percentage of your income you have to pay.
- Script: As you can see from the slide, the income tax surcharge proposal would raise around $543 billion over 10 years – roughly half of the amount needed to fund health care reform. As we said earlier, the rest of the amount would come from savings to the health care system under the House bill. Is this proposal fair? Well, we already said it was progressive – it taxes the rich at a higher rate. Less than 1% of upstate New York taxpayers would have to pay it, for example. That’s why groups like Health Care for America Now support it. [You might want to ask the audience: “Anyone here make over $280,000?”] Another way to look at it is that the $543 billion that this tax would raise is less than the $700 billion the richest Americans received from the Bush tax cuts, so they’re still way ahead. That’s reasonable amount to give back given the increases in the wealth of this sector of the population in the last decade. Additions: 1.8% of taxpayers statewide would have to pay it. The definition of “upstate” here is the counties other than the 12 counties in the MTA region downstate. For the 12 counties in the “MTA region” downstate, i.e. NYC, Nassau, Suffolk, Westchester, Rockland etc., the percentage that would be affected is 2.3% -- still a small figure. (The national average is 1.3%.) The $543 billion and $700 billion figures are 10 year estimates.
- Script: [Just use slide.] Additions: There are lots of variations in this proposal – that’s why we provided a broad range of numbers in the estimate. For example, health plans provided only to high-income taxpayers could be taxed or plans over a certain value could be taxed, or some version of both. It doesn’t seem even remotely politically possible they will opt for taxing all plans, but taxing really costly plans or these aimed at high-income people (or both) is at least a possibility in the final deal.
- Script: [Just use slide.] Additions: We didn’t discuss the issue of progressivity in the script – too complex. However, if it comes up, say that it’s hard to generalize, and it depends on how the proposal is structured. However, even if a proposal could be said to be “progressive,” it certainly could have a negative impact on low and moderate income people in order to raise the amount estimated in the previous slide. One study: those at the bottom 40% in income would pay increased taxes of $550 annually – a large amount for a low income person.
- Script: [Just use slide.] Additions: HCAN opposes sin taxes in principle since they’re not progressive in nature.
- Script: A progressive proposal that the President supports would limit the value of itemized deductions on income taxes for higher income people – those in the 39.6% tax bracket. Right now, people can get tax deductions – a reduction on their income taxes – for a whole wide range of things, like the interest they pay on their mortgage, and state and local taxes. The problem is the present system is highly regressive. To give one simple example, a wealthy person with a mortgage of - say - $1.5 million for his mansion is likely to be in the 39.6% tax bracket – let’s round that off to the 40% tax bracket. The 40% tax bracket means Mr. Richguy saves 40 cents for every dollar he can deduct from his income taxes. An example of something that’s deductible is the $1 million in interest that the wealthy person pays on his mortgage for his house or coop apartment. Under our example, the wealthy person saves 40% of his mortgage interest in taxes every year, or $400,000. Another way of saying this is that the U.S. government pays 40% of his mortgage interest every year – and that’s likely to be a huge percentage of his monthly mortgage payment. However for a middle income person in the 15% tax bracket, the U.S. government only pays 15% of his mortgage interest every year: he saves in taxes only 15 cents for every dollar he pays for interest on his mortgage. This is extremely unfair, and subsidizes the building of huge houses that contribute to suburban sprawl. (For those people here who rent and have never had a mortgage, the interest is often the majority of your monthly payment to the bank, so the mortgage interest deduction is often key to your finances if you own a house or apartment!) President Obama is proposing to limit how much people in the 40% tax bracket – very high income people- can deduct. This is a highly progressive proposal, and as you can see, would raise $260 billion – about half the amount we need to fund health care from taxes.
- Script: This chart summarizes the proposals we’ve just discussed. [go through the chart, and say the following] This is the point. There are several major proposals out there – and several others that we haven’t discussed today, such as various taxes on insurance companies. In evaluating these proposals, and in responding to proposals that are made in the media and in Congress in the next few weeks, we’ve got to consider not just how much a proposal raises – as important as that is – but whether a proposal is progressive – whether it responds to the increasing unfairness of our tax system over the last decade. What this chart also shows is that we do have the money to fund health care and other basic human needs. As the phrase in blue at the bottom of the chart explains, just the 4 proposals we’ve outlined here could raise up to 1.6 trillion dollars over ten years: three times the $500 billion in new taxes needed to fund the House bill. (One minor qualification: we don’t mean to say that all 4 of these proposals will all be passed as part of one package; for example, the income tax surcharge and limiting itemized deductions for the wealthy are both aimed at roughly the same constituency and therefore are unlikely to both happen – we’re just trying to give you a sense of how much could be raised!) And again, there are many proposals out there we didn’t have time to outline today.
- Script: As we said earlier, a lot of other ways to raise revenue can be imagined. Two examples of revenue raisers that we haven’t mentioned here that the Senate Finance Committee has mentioned in a policy paper that they might consider are: Limiting the tax benefits that employees can receive from so called “Flexible Savings Accounts” and “Health Savings Accounts.” Employees who contribute to these accounts are often higher income, and Limiting the number of non-profit hospitals that are tax-exempt, getting at the issue that some of these hospitals don’t always fulfill the expectations of what we as a society expect of non-profit hospitals, like provide care for the low-income people who can’t afford to pay for their care.
- Additions: The increase in health care cited in Baucus’ white paper on health care.