2. Healthcare
Now we establish universal healthcare based on single-payer system. The citizens listed above (plus any exceptions) are now eligible for healthcare services in the US.
A. Funding
Funding is to be provided through the federal tax system (see tax policy below) and a combination of premiums and co-pays charged to the individuals. Currently, the total health care costs in the US are about $2.2T. There should be savings realized by the single-payer system, and there may be some net savings due to universal care and improved health policies, but there may be some increase in costs associated with care for individuals who currently do not receive adequate care.
B. Individual Payments
There is currently a graduated rate for Medicare B premiums, with the base rate just under $100 per month. Let’s assume that $100 per month will be charged for all individuals, except reduced as income drops below a table of values depending on family size and income. As an example, a couple without children whose total income is $100,000 would each pay $100 per month in medical premiums, or $2400 per year. If we made that the breakpoint, then a couple earning $75,000 would pay 75% of that premium and so on. As a (very rough) guess, the total premiums paid by this approach would be about $135B.
In addition, there would be a co-pay required for each use of the healthcare system, likely necessary to avoid unnecessary overuse of the services. The amount of this co-pay would be established depending on the service, and adjusted for income in the same manner as the premium. The total of the co-pays for a year would not exceed the cost of the premium, which effectively limits the individuals cost to twice the premium, or 4.8% of income up to $100K for a couple. People with incomes above that would have a smaller percentage of their income used for healthcare directly, but would pay more through the progressive income tax (see below). Since the total of all co-pays would be less than the premium cost, then the total amount paid through co-pays would be less than $135B – let’s say $65B, for a total of $200B.
There is a lot of revenue still required to reach the projected $2.2T cost.
3. Tax Policy
Significant changes to tax policy are recommended to simplify the system, promote savings and make US businesses more competitive. The suggestions are:
A. Eliminate Corporate Taxes on Profits
This will make business less costly not only from tax relief, but from the onerous task of tax compliance. However, it will remove a substantial amount ($600B?) of tax revenue from the US Treasury.
B. Provide a Substantial Standard Deduction for Individuals
The recommended (preliminary) deduction would be $50K for individuals, $100K for married couples, and $5K per child in addition to the base deduction. It would still be necessary to file simplified tax forms (for other reasons) even though no taxes were due.
C. Institute a National Sales Tax with tax credits
The recommended (preliminary) sales tax would be 15% for all new items (including cars, housing, etc.), although some items could be more (gasoline, cigarettes, etc.) and some less (solar installations, insulation, etc.). Although used items would be exempt, that exemption may be a false savings as the trading value would be increased as a result of the previously paid tax on an item. Since a sales tax is quite regressive, a tax credit equal to the sales tax to be paid on basic items would be provided to each household. Tentatively, that would be a 15% credit on the first $25,000 for a married couple, or $3750 (less for an individual, more for families). That credit could be paid monthly to offset the sales tax costs as they are incurred. The sales tax would add approximately $1.67T ($2.1T in taxes less $430B in tax credits) to the revenue of the Treasury.
D. Revamp the Payroll Tax System
The Payroll tax is very regressive, although the eventual benefits are quite progressive. The recommendation is to keep the progressive payout system, but to make the tax less regressive. The current payroll tax is 15.3% (combined employer/employee) on incomes up to slightly above $100K for an individual, and a lesser rate (2.9%) above that. The recommendation is to ramp up the payroll tax to the current value at 50% of the individual’s deduction (which is tentatively $50K) and then keep it at that value for all incomes. The employer would be responsible for ½ the tax (as is currently). Therefore a worker with $25K salary would contribute 50% of the payroll tax he would otherwise pay. Although this would reduce the payroll tax revenue to the government, the increase in payments at salaries above $100K would likely compensate for this reduction.
E. Eliminate Tax Deductions
With the high standard deduction, all itemized deductions would be eliminated. This would simplify the tax system, eliminate the need for the AMT, and prevent “gaming” the system by those with the “best” tax accountants.
F. Modify Capital Gains Tax
Instead of fixed preferred rate for long term Capital Gains, provide a tax credit of 10% for that portion of income attributable to long term Capital Gains. This would only apply to individuals whose total income exceeded the applicable standard deduction (no credit unless taxes paid).
G. Revise the tax rates and brackets.
For income above the standard deduction, apply tax rates starting at 20% and increasing in increments of 5% for each $50K (for couples) above the standard deduction up to a maximum of a 40% rate. A couple with $200K income would pay $0 for the first $100K, $10K for the next $50K and $12.5K for the next $50K for a total of $22.5K. Continue Earned Income tax credit.
4. Net tax revenue
The net tax revenue for these changes is TBD, and therefore all the “recommended” parameters are preliminary.
5. Federal Spending
In conjunction with these changes, a re-evaluation of Federal Spending is required. There is a significant increase in Medical Spending, from the approximate $500B for Medicare/Medicaid today to about $2.2T with the single-payer approach. Considering the $200B in premiums/co-pays, that leaves a net increase in medical spending of $1.5T. Some reduction in tax compliance costs and a needed reduction in spending on obsolete military systems will help, but it is likely the revenue side of the ledger will need to produce more income.
6. Benefits
There should be several benefits from this approach:
a) Universal health care with consistent treatment for all
b) Increased competitiveness for US employee businesses
c) Simplified tax system, with less opportunity for evasion
d) Tax system more equitable with respect to ability to pay
e) Increased incentive for savings
Just how much would exempting all married couples making under $100,000 from the income tax cost? Lots and lots. A tax break during this downturn, sure. A $100K standard deduction, I don’t think so. Particularly given the horrible fiscal outlook after the (necessary) Keynesian stimulus occurs over the next couple years.
<
p>The national sales tax also doesn’t seem like such a hot idea. The last thing we need now is to give people even less of a reason to purchase goods. Not to mention establishing a major additional burden/expectation by shifting the burden of tax collection to small businesses, rather than the IRS. The complexity of the sales tax rebate system you propose also goes against the idea of simplifying the tax system, as you suggest later.
<
p>I would encourage savings (probably only AFTER the current financial crisis subsides) by creating some sort of “saver’s credit” in the tax code, to give an Earned Income Tax Credit-like matching benefit for money lower- and middle-income families put into savings.
But not nearly as much as you might think. The percentages of income paid in federal income tax for the 5 quintiles of household income for 2007 were:
-5.0%
-2.8%
2.8%
6.8%
14.5%
<
p>So the Government would lose the 2.8%, the 6.8% and a portion of the 14.5%, maybe 1/2 of the $1.2T collected.
<
p>However, if you look at the percent income tax paid within that top quintile:
top 10% = 16.3%
top 5% = 17.7%
top 1% = 19.2%
top 0.1% = 19.3%
<
p>So with progressive rates of 20% to 40% above $100K, a good portion of the “lost” $600B would be recovered.
<
p>And that is only the income tax. We have to add the extended payroll tax and the sales tax to that revenue.