As Congress debates health care reform, increasing attention is being paid to the question of how reform can be financed, even though no major decisions on financing have been announced by key lawmakers.

Earlier this week, the Congressional Budget Office (CBO) released estimates for proposals from the Senate Health, Education, Labor and Pensions (HELP) Committee and the Senate Finance Committee. The HELP proposal was clearly only a partial proposal, as it did not yet include several expected provisions that would likely further reduce health care costs overall, and it's unclear how complete was the Finance proposal that CBO also scored. (It seems unlikely that the Finance proposal was complete given that Finance Committee chairman Max Baucus has long been laboring to create bipartisan consensus.)

Nevertheless, the costs estimates, $1 trillion over ten years for the HELP proposal and $1.6 trillion over ten years for the Finance proposal, have prompted some to say the proposals should be scaled back. Senator Baucus stated a desire to hold the total cost under $1 trillion -- an entirely arbitrary number. The Finance Committee subsequently released plans for a scaled back health care plan that would not include a public option and that would provide far less support to help poor and working class families obtain health insurance.

Over in the House, the Ways and Means Committee is reported to be considering several revenue options, some of which are progressive (like a surtax on high-income people and the President's proposed limit on the benefits of itemized deductions for high-income people). But there are some items on the list that would impact low- and middle-income families, like a national sales tax and its cousin, a value-added tax (VAT), and a simple increase in the flat rate Medicare tax.

There Is Another Way

Congress does not need to scale back reform and it does not need to turn to regressive revenue sources. First, there are ways to reduce the costs of a plan that involve stronger reforms rather than weaker reforms. For example, a public plan could more aggressively compete with private insurance and force down the costs of care overall.

Second, if health care reform will require additional revenue, then Congress has several options to raise revenue in progressive ways. That is the message that the Rebuild and Renew America Now (RRAN) coalition is taking to America in the coming weeks. The religious organizations, service-providers, unions, advocates and other types of organizations that belong to RRAN have turned their attention to educating Congress and the public about the myriad ways that Congress can raise substantial sums of revenue without hurting struggling families and without harming the economy.

These progressive financing options include the many revenue-raising provisions the President proposed in his budget to fund health care and several other initiatives. (See the CTJ report explaining these options put forth by the President.) They also include several additional options formulated by CTJ and endorsed by Health Care for America Now (HCAN) and RRAN. (See CTJ's report laying out these additional progressive revenue options to fund health care reform.)

The Medicare Tax

For example, Congress might want to expand the Medicare tax, given that it is the one tax we currently have that is dedicated to health care. But there is a much better way than simply increasing the single rate (currently 1.45 percent paid by employees and another 1.45 percent paid by employers) that applies to all wages and salaries. As the CTJ report on health care financing options explains, the Medicare tax currently only applies to wages and salaries. This means that a wealthy person whose income takes the form of capital gains, stock dividends and interest could pay no Medicare tax at all in a given year, while someone who works for a living but has a much smaller income will pay the Medicare tax on every dollar they earn.

To address this obvious unfairness, Congress could extend the Medicare tax to apply to the investment income that is currently exempt. CTJ's report includes a version of this that would raise over $40 billion a year even while exempting most of the investment income of seniors. This would primarily impact just the richest one percent of taxpayers and would simply end an unfair feature of our tax system.

President Obama's Proposal to Limit Itemized Deductions for the Rich

There are plenty of other progressive revenue options (laid out in both reports) which Congress can turn to, particularly the President's proposal to limit the benefits of itemized deductions to 28 percent. Currently itemized deductions subsidize certain activities (like buying a house) through the tax code, and it subsidizes them at a higher rate for high-income people than it does for low-income people.

For example, the itemized deduction for home mortgage interest is supposed to encourage home ownership, but it does so in an outrageously unfair manner. Someone rich enough to be in the 35 percent income tax bracket will save $350 for each thousand dollars they spend on home mortgage interest, while a family in the 15 percent tax bracket will save only $150 for each thousand dollars they spend on home mortgage interest. The President would reduce, but not eliminate, this disparity by limiting the savings for each dollar of deductions to 28 cents.
A_Capital_Idea.pdf

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