The full court push is now on to pass sweeping health care legislation. The goal is to provide care for (almost) all Americans. The last time we endured this debate was in the early days of the first term of Bill Clinton. The plan then, doomed from the beginning, went down in flames. This time there is a much better chance that Congress will pass a plan of some sort. Like every American I am very interested in this issue. But like almost every American I think the devil is really in the details. This is precisely what makes me so nervous. (I'm not losing any sleep over this, however, so take my words in their context!) We are all being asked to trust the federal government to create a program that involves hundreds of thousands of administrators and more red tape than we know what to do with. In my lifetime I have learned one thing about the federal government—it does a poor job of running large programs. Not only does the government administer programs poorly but it clearly spends money wastefully. Have you ever waited in line at a Social Security office or at the Post Office? I seriously doubt that there is disagreement about my common-sense observation, at least among the overwhelming majority of Americans who are not employed by the government. (Say, are we the minority yet?)
At the same time we do have several health insurance issues in this country. Regulation is clearly needed and the government has an important role in such regulation. If that were all we needed the big debate would be over. Everyone agrees about this but the party in power wants more, much more.
I am trying to read the various “non-partisan” reports about the health insurance in order to determine what is good or bad about the legislation being formed in the House this week. House Democrats, the Associated Press reported earlier this week, plan to hit the wealthy with even higher income taxes in order to pay for their version of health care. Once again this is no real surprise. The Democrats always plan to take more from the rich and give it, as a function of government, to the poor. Some details of this plan came out earlier in the week. A family of four making $450,000 would pay $103,600 in federal income taxes, an increase of only $1,000. A single filer making the same amount would see a $7,100 increase. A family of four making $800,000 would pay $220,800 in federal income taxes, an increase of $30,000. A single filer would see a $30,700 increase. But if you make $5 million you would see an increase of $443,500. And if you are single and make $5 million you will see an increase of $452,000.
Many will argue that the rich will still be very rich regardless of these changes. I agree. But this is a huge tax burden and it is growing with every decision Congress makes to fix the nation’s problems through government initiatives and spending. GM has already become Government Motors and who thinks it will (or should) avoid bankruptcy.
What most people do not realize is that taxing the rich to pay for health insurance would represent a very significant shift away from the way Americans have financed safety net programs in the past. Social Security and Medicare are paid for with broad based payroll taxes. The rich pay more of these taxes for sure but the middle class and working poor pay a share as well. This is where my concern lies with the Obama plan that Congress seems intent on passing. Under this plan 1.2 percent of households would pay for the whole program. The surtax to be added to those making $350,000 and more would be 1%. By 2013 it could be doubled to 2% if the program is running behind budget, which many non-partisan reports suggest is inevitable. Is there any serious doubt that this will indeed happen?
The top marginal income tax rate is now 35% on all income above $372,950. Obama wants to raise the top rate to 39.6% by 2011 by allowing the Bush tax cuts to expire. House Democrats admit that their health surtax would increase the rate to 45%, making it the highest since 1986, when it was 50%. And some insist that there will be marginal tax rates that exceed 50%. And none of this includes all the other taxes we pay, which would drive the total amount for many of our wealthiest Americans above 60%, approaching the once high mark of 70%.
Here’s the rub. What will these tax rates do to small business owners, especially the mid-sized owners and entrepreneurs who invest loads of their own money in ventures that employ millions of Americas? No one can say for sure. These small business owners generally pay their taxes on their personal returns. Democrats argue that things will be just fine so we should trust them. They promise that business will not be hurt by their plan. But people like me remember the Carter era, and Reagan’s first term, before we finally brought these rates under serious control. We even remember with gratitude that President Clinton revised the welfare system though he did little to help with regard to the tax problem.
California Republican Wally Herger said this past weekend: “We shouldn’t have to resurrect the 1970s to remember that when tax rates go too high, people lose the incentive to build new businesses and create jobs. These massive tax increases are no substitute for real fiscal responsibility.” This is precisely my concern.