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Sorry, Congress. There’s (Still) No Way to Raise Revenue Without Taxing (Real) People.

October 7th, 2009 . by economistmom

Well, it took a couple months, but those with a stake in health care reform have finally figured out that the idea of an excise tax on insurance companies instead of an any alternative tax on “real people” was no magic cure for the want-more-revenue-but-don’t-want-higher-taxes blues.  From a story by Ben Smith and Patrick O’Connor in today’s Politico (emphasis added):

More than half of the Democrats in the House have signed on to a letter denouncing a key element of the Senate Finance Committee’s health care legislation as labor unions draw a line in the sand on paying for reform.

The Democrats are attacking a plan to finance expanded health care by taxing expensive health insurance plans. The plan, sometimes cast as a tax on “Cadillac” plans, would in fact include the health care plans of many public employees and union members and has triggered a revolt from Obama’s labor supporters and their many allies on the Hill.

The letter from 154 House Democrats to Speaker Nancy Pelosi urges her “to reject proposals to enact an excise tax on high-cost insurance plans that could be potentially passed on to middle-class families.”

“We oppose the excise tax because it will be passed on to our people,” [Teamsters president James] Hoffa told POLITICO. “We will oppose it in the Senate. We will oppose it in the House. We will oppose it in conference.”

But guess what?  The economic burden of all types of taxes–or “fees” or “factors” or “things”–no matter who is actually targeted statutorily (no matter what the legislation actually says), ultimately must fall on real people.  Yes, actual real, living, breathing people!  Some of those people may be richer than others.  Some may be older than others.  Some may be healthier than others or have more kids or consume more energy.  But in all cases to exclude from the tax burden a class of people as large as the “middle class” (defined, say, as those with incomes below $250,000) is to guarantee that policymakers will not be able to raise enough revenue to pay for all the things they agree they want to buy.  (And we know that politicians are always able to “compromise” and work in a “bipartisan” manner as long as each side gets what they want in terms of more spending and more tax cuts.)

I continue to believe that it would be better for our politicians to level with the American people and tell them that we need to raise more than the revenue we can possibly extract from only those people that don’t seem to count as “real people”–the really, really rich people, the corrupt CEOs, the (foolish?) people who are obese yet keep drinking soda pop?–and that an economically smart and socially fair way to pay for expanded health care coverage would be to more directly (at least partially) tax employer-provided health benefits at the household level (through the individual income tax).  Taxing households more directly would allow policymakers to tailor the tax to those (yes, real) people who they’re most comfortable raising taxes on, and would be more transparent to the people–in fact, with the health exclusion, that’s part of the wisdom of it.  But while we’re talking about honesty and courage, Congress and the Obama Administration need to face up to the fact that those real people who will face tax increases will have to include at least some of that vast “middle class”–or Congress and the Administration will have to start giving up some of those policy ideas that they think they’ve already agreed on.  Will they really find it worth giving up expanded and more “affordable” (to real people) health care coverage just to keep the President’s campaign promises about taxes?

6 Responses to “Sorry, Congress. There’s (Still) No Way to Raise Revenue Without Taxing (Real) People.”

  1. comment number 1 by: murf

    That would be the “vast middle class” upon which President Obama promised NOT to raise taxes. Whatever they do, they are going to have to disguise the (coming) tax increase in order to hide the fact that they are raising taxes. Look for a VAT.

  2. comment number 2 by: SteveinCH

    Personally, I don’t think a VAT will fly politically. It will quickly be defined (largely correctly) as a national sales tax and a nice line graph on sales tax rates over time ought to do the trick at that point.

    Says he in the land of the 10.25% sales tax ; )

  3. comment number 3 by: SteveinCH

    And we’re surprised by this why exactly? There is no way that anyone wants to be part of the select few who get to pay the tax. It’s OK to tax the “rich” because after all, they don’t deserve the money they make. Try taxing union benefits and we get “do you understand how hard we worked for that money”. I had to laugh at the silliness of it all.

    If I had my way, none of it would be tax deductible and we’d take the whole market to individual insurance to get rid of all the silly subsidies and move people closer to the dollars they spend. But I don’t think I’m going to have my way…

  4. comment number 4 by: Brooks

    Good Tom Friedman column today http://www.nytimes.com/2009/10/07/opinion/07friedman.html?_r=1&ref=opinion

  5. comment number 5 by: murf

    By the way of course there IS a way to raise revenue without taxing people, and it is the best way to raise revenue - do things that encourage economic growth. Raising taxes is not going to get it done.

  6. comment number 6 by: SteveinCH

    Sorry Murf,

    Grow your way out of the problem has been our approach for the past 5 decades. It doesn’t appear to work.