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The Downpayment

by GoozNews ~ 27 Feb 2009 12:01pm

Repealing corporate tax breaks and taxing the wealthy. A carbon cap and trade system. Major investments in alternative energy. A substantial downpayment on health care reform -- paid for through tax increases, provider cuts and premium increases for seniors.

The Obama administration in its first budget unveiled yesterday outlined a fundamental reordering of federal priorities comparable in scope and opposite in direction to the Reagan revolution of the early 1980s.

You're going to hear a lot in the coming days about the difficulties this program will face in getting through Congress. The political pundits this morning called the Obama plan a political risk, a gamble with his presidency. The special interests, their political lobbyists already lined up along K Street's Gucci Gulch, will certainly use all the powers and contacts at their command to avoid an era when they no longer get to treat the federal budget as a personal piggy bank.

But here's one fact that you ought to keep in mind as you listen to the cacophonous wails emanating from the nation's capital in the weeks ahead. It was an analysis from a tax planner at Deloitte Tax included in the last few paragraphs of a long Washington Post story on the Obama budget plan:

If Obama's tax plan is approved, a family making $500,000 a year would see its annual tax bill rise to nearly $132,000 from about $120,000, a 10 percent increase.

Given the extraordinary concentration of wealth and income of recent decades, with nearly all wage gains going to the top ten percent of the population and nearly everyone else experiencing stagnant or declining wages, redistributing income slightly through the tax code is not only the right thing to do, it is the only way we're going to put the nation back on the path to shared prosperity.

Meanwhile, the details of Obama's health care program were sketchy, but embodied a similar philosophy: small doses of pain for those who have benefited from the current system in order to extend its benefits to more people. The 10-year, $634 "downpayment" on health care reform includes:

    Raising $318 billion by limiting deductions for families earning over $250,000 a year;
    Increasing the Medicare drug benefit's premiums for higher income seniors;
    Cutting out extra payments for Medicare Advantage, the HMO plan for seniors that costs the government 14 percent more per beneficiary than the regular fee-for-service program. That alone would eliminate $175 billion over ten years in Medicare costs;
    Reducing Medicare hospital payments by $38 billion over ten years; and
    Negotiating higher drug rebates from drug makers selling to Medicare through the Part D program -- $19.5 billion over ten years.

The downpayment approach is a bow to political reality. If there is going to be comprehensive health care reform this year, it will have to be worked out on the floors of the House and Senate. The special interests -- hospitals, physician guilds, drug and device companies, durable equipment makers, nursing home chains, dialysis clinics, and, of course, the insurance industry -- are going to have their rhetorical endorsement of health care reform put to the test. Will they be willing to take reduced growth rates in the future so that everyone can have health insurance?

Individuals and small businesses will not be let off the hook. They will be asked to commit to buying health insurance, and accept the idea that not every new technology that comes down the pike is necessarily the best option for improving their health. The nation will need to debate affordability. Are we willing to have a subsidized public health insurance option (or an expanded Medicare) to cover people who cannot afford private insurance or don't wish to be part of that marketplace.

Universal health insurance, like the cap-and-trade carbon emission program thrown on the table yesterday, will happen only if the American people and their elected representatives agree with this president that it's time to get down to work to solve our common problems that have been ignored for too long. The era of big, ineffective government that doesn't collect taxes from the well-to-do is over. The question now is whether the era of a larger, effective government that uses deficits to invest in the future is finally at hand.

Obama laid out a bold vision yesterday. But it's going to take millions of people all over the country telling their elected leaders that they agree that a renewed burst of liberal government activism in health care, energy, infrastructure and education is the best way to return the nation to the path of sustained economic growth.

Comments

Sun, 03/01/2009 - 03:36 — Dale Wolf

There is a bit of a paradox that seems to be standing in the shadows of this particular mix of reform ideas.

There is a ratcheting down of hospital income and generally a conclusion that providers are making too much money. When that money goes away, good healthcare workers are likely to find other career opportunities. And with masses of new uninsured workers comeing into the system, I wonder if our provider system can handle the load. Sure we need to become more efficient, but many hospitals are already in the red and this reform has a potential of shuttering systems that will be desperately needed when a huge and sudden surge of new patients come looking for care.

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Fri, 02/27/2009 - 17:51 — Larry Santora, MD

Greg,
Your economic analysis is spot on. The only prosperity that is sustainable is prosperity that is shared, and over the past eight years, most of us got nothing from the so-called economic expansion.

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Fri, 02/27/2009 - 17:33 — Anonymous

The economic stimulus package enacted one of the largest tax cuts ever for 95% of Americans. Any increases in taxes on the top two income brackets will not take effect until 2011. It will reduce itemized deductions for those making more than $250,000 a year, raise the top rate on capital gains and dividends to 20%, from 15%, and closes the captial-gains loophole so that hedge fund and other private-equity managers have their profits taxed as ordinary income instead of capital gains.

What the Center for Budget and Policy Priorities has shown clearly is despite major tax cuts from 2001 to 2006, the economy's performance during the previous administration registered the weakest jobs and income growth in the post-war period, overall monthy job growth was the worst of any cycle since 1945, and household income growth was negative for the first time since 1967. The tax cuts were followed by pronounced decreases in the fraction of GDP devoted to business investment.

As far as small businesses are concerned, a majority of those affected by the proposed tax increase do not make enough to qualify for the tax increase. Only 1.9% of small businesses file in the top two federal income tax brackets, which leaves 98.1% unaffected by the rate change. And only 650,000 filers with small business income who face one of the top two tax rates are merely passive investors whho have nothing to do with running the business. Overall, only 0.7% of households file in the top two income brackets.

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Sat, 02/28/2009 - 18:09 — davey

Arguably the biggest special interests associated with Americans' healthcare woes seem quite untouched--the fast/unhealthsome-food and slothful entertainment industries.

Okay, baby steps. Melioration

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Mon, 03/02/2009 - 12:45 — Al Goozner

We are in the midst of what I hope won't be the worst financial crisis the country has ever suffered.

Tell me how increasing the taxes on capital gains would help?

Sell Sell Sell!!!

Sell before the tax rates go up is the cure? For me? I'm going to cash.

Wouldn't decreasing the taxes be the better way to go in an atmosphere of fear and increased risk to make investments that would create jobs?

For a person who lost his job, had had his Civil Service Annuity reduced and his health insurance premiums increased along with increased Real Estate taxes, as much as I come from the same mold of liberalism I also believe in productivity and the incentive to produce the wealth that is needed. The Nation going into debt for future generations to pay and taxes beyond belief makes the prospect of retirement and good health care reduced.

I for one face increased co-pays and shifting to generic products. I hope they work as well - my next blood test will tell.

From this suffering - please someone step forward to tell me if you are benefiting at all from this, other than a hopefully not false prospect that things will improve.

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Wed, 03/04/2009 - 09:53 — Person of Choler

"...and accept the idea that not every new technology that comes down the pike is necessarily the best option for improving their health."

This will work if nobody finds out that their life (or lives of their family) could be saved by some of this new technology that we need to be conditioned to do without.

Of course, development of new technology will be stifled when pharma companies have their obscene profits clipped by price caps, regulation, and punitive taxation, so the acceptance will, in the long run, come easily.

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Tue, 03/03/2009 - 17:02 — Maggie Mahar

Merrill is absolutely right:

Obama is beginning to reverse the 29 years of
redistributing income upward that began with Reagan.

As a result of that 29 year effort, 20 percent of the population owns 80 percent of the country's aggregate wealth. 1 percent of the population owns 34% of wealth.

Capital gains tax cuts helped the process of consoldidating wealth at teh top.

The result: with so much money sloshing around among so few famlies, too many dollars began chasing stocks and real esate. The result: reckless speculation that created the stock market bubble and the real estate bubble.
That's what we are paying for now.

During those years the middle class began to disappear while the number of very poor families--and very wealthy families--grew. Such a lopsided
economy is very unstable. Speculation always follows (see the 1920s)

A very good book published in 1972 (73?) called "The Limits of Growth" predicted what has now happened.

Obama will, I suspect, continue to tax wealth at the top, and use the money to invest in "the public good" (a.k.a. the wealth of the nation)--
public schools, public health, higher quality healthcare for all;infrastructure; alternative sources of energy; global warming -- things that
will help all of us . ..

Finally, Al Goozner, I am very sorry that you have been so hard hit by this recession. But keep in mind, under Obama's proposal you (along with 95% of Americans) are going to receive tax cuts.

The only people who face tax hikes are couples earning more than $250,00-- these families are part of the wealthiest 1.8% of the nation.
They are not middle-class--or even uppper-middle-class.

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