Latest Bush Tax Plan?

[West]

More relief for struggling millionaires
If you thought the current Bush tax rate rewarded the wealthy, wait until you get a load of his administration's latest plan.

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By Michelle Goldberg



Nov. 20, 2004 | Liberal policy wonks -- and even some who aren't so liberal -- did a double take when they read the new tax plan floated by the Bush administration in the Washington Post on Thursday. Was the White House really suggesting eliminating incentives for employers to offer their employees health insurance plans? Was it really proposing to shift the country's tax burden even further onto states that didn't vote for Bush, like New York and Massachusetts?

It was.


The Post reported that according to White House advisors, the Bush administration "plans to push major amendments that would shield interest, dividends and capital gains from taxation, expand tax breaks for business investment and take other steps intended to simplify the system and encourage economic growth."

The plan would further shift the tax burden off of people whose money comes largely from interest and investments -- the very rich -- a prospect that liberals find disheartening but not surprising. But what really caught financial experts' attention was the next paragraph, which explained how Bush intended to pay for these tax cuts.

"The changes are meant to be revenue-neutral," the Post explained. "To pay for them, the administration is considering eliminating the deduction of state and local taxes on federal income tax returns and scrapping the business tax deduction for employer-provided health insurance, the advisers said."

"Revenue-neutral?" asks Martin Press, a high-profile tax attorney and registered Republican. "There's no such thing. When lawmakers refer to 'revenue neutral,' they mean it helps someone and hurts someone else." If such policies move forward, says John Irons, associate director for tax and budget policy at the Center for American Progress, a liberal think tank, "You'll see an economy that benefits only the very few at the very top. People in the middle will be squeezed, people in the low end won't be helped at all."

The first part of the plan -- which would get rid of federal tax deductions for state and local income tax -- would fall disproportionately hard on Democratic-voting states, which already pay more in taxes than they receive from the federal government. On his blog MaxSpeak, the economist Max Sawicky calls the proposal "The Bush Blue State Tax." Experts say the second part, which would do away with the tax deduction granted to employers for providing health insurance, would likely throw millions of people out of group plans, forcing them to buy far more expensive individual insurance.

Irons was so amazed by the health insurance proposal he read it twice. Right now, employers get a tax break for offering health insurance plans to their employees. Take that away, and there would be no reason for many companies to bother.

"If you're trying to imagine the quickest way to create millions of uninsured people, that's it," Irons says. "Something like 52 percent of everyone who has health insurance has it through their employer." Without the tax benefit, he says, "I would expect a ton of companies to drop health insurance altogether. And that would throw their employees out on the mercy of the market."

Of course, people who get health insurance through their companies have to pay for it, generally through payroll deductions, and presumably, if companies no longer offered health benefits, employees would see increases in their paychecks.

But that doesn't mean they could just go out and buy health insurance on their own, as anyone who has ever tried to buy coverage understands. Individual health insurance is far more expensive than group plans, and individuals have less power to negotiate. "People would be tossed out of these group plans and they'd have to fend for themselves, and it would be prohibitive," says Sawicky, who works at the Economic Policy Institute, a Washington think tank. "They'd have to take [a policy] much more narrowly focused on catastrophic coverage and they'd have to pay much more out of pocket."

Press says: "If you quit your job and your health insurance ends, COBRA, a federal law, allows you to buy it [temporarily] from the employer at the employer's rates. I have seen people spending $6,000 a year on COBRA, and when they have to go out and get their own policy, it goes from $6,000 to $25,000."

Press is a partner at the law firm Gunster Yoakley, whose clients include Bank of America, J.P. Morgan Chase & Co. and Hilton Hotels Corp. He's no bleeding-heart liberal. But, he says, "Taking away the deduction for healthcare premiums? I don't see any logic for that under any theory."

Sawicky does. Health insurance companies, he says, "would make more selling to individuals. Not that they're not making any money now, they'd just like to make more."

If removing the health-insurance deduction would reward some of the administration's supporters, removing state and local tax deductions would punish its enemies.

Why? Because these state and local income taxes are highest in such blue states as New York, Massachusetts and California, says Press. New York City also has an income tax. State taxes are lowest in the red states, which provide fewer services. Texas and Florida have no income tax at all.

Right now, people who itemize their tax returns -- about 30 percent of taxpayers, according to Sawicky -- can write off the money they pay in local taxes, thus reducing their federal taxes. "If you're in New York and you're a high-income person, you pay more state income tax, but the blow is less severe because you can deduct it," says Sawicky. "So in effect the price of your state income tax has been reduced. If you pay a dollar in state income tax and you're in the 35 percent bracket, you can deduct $.35, so in effect your state income tax is only costing you $.65 on the dollar."

"If you take away those deductions, you're in reality increasing the taxes on high-taxing, generally blue states," says Press.

Because this proposal would increase the sting of state income taxes, it would make it harder for states and cities to raise their taxes and build up state programs like childcare and health insurance. It would allow small-government conservatives to exert their influence on blue-state social policy. "If you take away the deduction for state income taxes, their logic is that you'll force government to be smaller," says Press.

Sawicky, for one, doesn't actually expect these provisions to pass. He sees them as "bogeymen" -- bargaining chips that can be scrapped in the fight to push forward the administration's real agenda: lowering taxes on the wealthy. The new deductions, says Sawicky, could allow the administration to say that it has a plan for paying for its tax cuts, "but I don't think they're very serious."

Beyond these proposals, he says, "The more general problem is the administration's policy, which is to blow holes in the tax system and let the deficit go to hell." He expects this to lead to a financial crisis that will force the government to slash social programs -- what right-wing operative Grover Norquist calls the "starve the beast" strategy.

So is the Bush administration truly pushing a system in which someone who lives off interest and dividends -- say, Paris Hilton -- would pay less tax than the person who cleans her bathroom? "Yes," Press says.

Irons explains it this way: "I was recently at the Treasury Department, where they were talking about eliminating the estate tax. The attitude was very much, 'Why doesn't everyone realize that we're the ones who create the jobs? Why doesn't everyone realize that it's us, the super-rich, that drive the economy?'"

He continues: "The attitude is that everyone who is working 40 hours a week doing an average job at a construction site, or is a store clerk, or me sitting in an office doing economic analysis, is feeding off the people who are the real successes. The attitude is that the economy should be geared to benefit the people who are business owners, who are rich, who are giving us the benefit of jobs. That's what you really see in the tax code."

http://www.salon.com/news/feature/20...tax/index.html

[natedogg]

Ok, I'll bite.

Was the White House really suggesting eliminating incentives for employers to offer their employees health insurance plans?

Try this on for size, a different perspective: http://reason.com/0411/fe.rb.mandatory.shtml

From the article:

Employer-provided medical coverage is itself another major reason for the high cost of heath care. Rather than pay workers wages that will be taxed, companies use pre-tax dollars to purchase health insurance as a benefit. Instead of paying an employee $1,000 more in wages, of which $400 will be taxed away, companies purchase $1,000 in additional health insurance tax-free. In this way companies funnel more than $140 billion a year in federal tax breaks to their workers. The tax-free status of employer-provided health insurance encourages generous coverage that allows employees to ignore the prices of medical services, which in turn encourages providers to charge more and more. Employees, seeking to take advantage of their coverage, tend to overutilize the system, which also puts pressure on prices.

Thus we have a system skewed toward overuse by the haves and underuse by the have-nots, in which the healthiest people (highly paid employees) get the most generous health insurance.

So you see, there are those who think they are doing america a favor by decoupling the relationship between employment and health-care, and they're probably right (although I'm no expert).


the Bush administration "plans to push major amendments that would shield interest, dividends and capital gains from taxation"

Oh god, not give tax breaks on investment! What on earth will happen? Wait, doesnt' that create jobs??

, expand tax breaks for business investment and take other steps intended to simplify the system and encourage economic growth."

Oh no! Bush wants to encourage economic growth! The sky is falling!

The plan would further shift the tax burden off of people whose money comes largely from interest and investments -- the very rich -- a prospect that liberals find disheartening but not surprising.

These breaks apply to ALL investors and investment creates more jobs, everyone knows that. Removing capital gains tax entirely would certainly benefit many of the uber-rich but it would also benefit EVERY SINGLE middle class investor in the country.

You see, the real complaint here is simply that the rich aren't punished enough for the liberals' liking.

Their view isa tax law is bad if it helps both middle AND upper income individuals. In fact, to most leftists, a tax law is bad if it helps ANYONE who isn't totally starving. You see, they'd rather have a law in place that punishes all investors because some of them are rich. They frame a tax reduction on investment as if its for the rich only when in fact the relief goes to 100 middle class families for every rich person. But it's still unacceptable to them because ONE millionaire got a break.

And the liberal definition of "rich" is ludicrous. They hate and punish the middle class too. My favorite example is the ridiculous income thresholds and limits on IRA contributions. If you earn over $100,000 you can't contribute you're measly $3000 tax-free IRA money to save for your retirement. What a joke.

God forbid the government take in less money, that's their view. (which is why they don't do a damn thing to promote tax relief for the very poor you'll notice. They're perfectly happy taxing the masses to death too.)

Individual health insurance is far more expensive than group plans.

This is absolutely untrue. I cant say it any plainer than that.

They'd have to take [a policy] much more narrowly focused on catastrophic coverage and they'd have to pay much more out of pocket.

In fact, catostrohpic coverage plans are better for individuals in terms of how much you end up paying for care. I use one of those plans myself. And as the article I referenced points out, if everyone in the country had a plan like that, people would pay more attention to the cost of care and prices would go down. Ideally we would create massive disincentives for employers to provide the all-encompassing low-co-pay health care people have now and provide nothing more than catastrophic coverage.

But, this would be bad in the short term for the bloated beast known as health insurance. Because individuals would be more selective about using low-priority care and pay more attention to what it costs them.

But, he [Press] says, "Taking away the deduction for healthcare premiums? I don't see any logic for that under any theory."

It took me 2 minutes to google and find articles by economic thinkers who think it's a good idea for workers if we take away the deduction. I suspect Press and others quoted in this article haven't even bothered to read those articles.

I'm not saying definitively it's a good idea or a bad idea, but there ARE arguments for it and I'm suspicous of Press' ability to reason if he can't even think of one much less FIND one out there.

Not to mention, if I'm not mistaken, individuals can deduct health insurance costs above 2% AGI and recent changes allow you to deduct premiums even if your employer isn't doing it for you.

So this puts the power into the hands of the individuals. THEY now have much greater discretion to decidE what kind of coverage they want and how to use it. But of course, empowering individuals is a big threat to all these statist liberals who want us all on our knees begging for the magnanimous handouts from washington.

Health insurance companies, he [sawicky] says, "would make more selling to individuals. Not that they're not making any money now, they'd just like to make more."

His ingrained bias against capitalism and profit finally can't be suppressed any longer and he shows his true colors. The REAL problem with a change in the status quo is apparently that companies might make MORE money, regardless of whether or not it's better for the consumer!

I see. Quick lesson on markets.

why do you think companies constantly try to innovate their products and services? It's so they'll make more money by selling cheaper or better or more convenient products and services to consumers.

A new system under which health insurance companies make more money is not necessarily a bad thing. They might be making more money because they can provide cheaper better services to more people.

Sawicky's statement rests on the use of a classic fallacy known as the false dichotomy. EITHER companies make less money OR consumers have better health insurance value. Simply not true.

Beyond these proposals, he says, "The more general problem is the administration's policy, which is to blow holes in the tax system and let the deficit go to hell."

The deficit going to hell is a totally separate issue from tax policy.

Most left-wing fiscal policy wonks take it as gospel that spending levels are where they should be, if not too low. It's a horror for them to imagine the government taking in less money because the question of reducing spending is unthinkable. Therefore, reduced revenue automatically means massive deficits.

Guess what? "blowing holes in the tax system" (whatever that means) does not require bigger deficits. Stop spending. It's really very simple. The Bush administration has acted like a bunch of left-wing democrats when it comes to spending, but it doesn't mean that reducing revenue is wrong, it just means that their spending policy is wrong.

what right-wing operative Grover Norquist calls the "starve the beast" strategy. "

Anyone using the term "right-wing operative" has totally sunk his own credibility by revealing such asinine bias.

One real problem with health insurance as it is now is that it's really hard to get covered if you have a condition unless you get a job that offers a group plan. Not sure how to resolve that but it is a big hurdle.

natedogg

[MtSmalls]

The fallacy in your free markets argument is that healthcare should be treated like a hamburger or a lawn mower. Most people would agree that healthcare, like education, police and fire protection and road construction are something that should be widely available to all.

Health insurance, like any insurance, is risk management, not about a product that can be made cheaper by innovation. The only way to squeeze more profit out of insurance is to either not cover the people who need it the most (those in poor health or those with poor driving records for example), thus lowering the risk of a payout by the insurance company or increasing the premiums charged. The HMO/PPO model was supposed to reduce healthcare costs, but seems to have failed by a wide margin.

If you eliminate the deduction for healthcare costs paid by employers, employers, by and large, will stop offering it. You talk about focusing insurance on catastrophic coverage. But what about the simple costs of doctor's visits? My wife or daughter gets a cold/flu, and without my insurance it would cost several hundred dollars to have them checked out. My daughter falls and breaks her arm (as children often do), it climbs to the thousands.

Healthcare shouldn't be free, but we shouldn't be penalizing the working class by taking the most effective method of coverage away from them.

As for the taxation plans, rewarding wealth and not work is a regressive system that takes a larger percentage of your income away the less that you make (down to the poverty line). Yes eliminating the capital gains tax would help everyone, but it would be disproportionately favorable to the top 5% of the country.

In our current situation, the country does not need a revenue NEUTRAL tax plan, it needs a revenue POSITIVE one.

[MMMMMM]

IMO we don't need to collect more taxes, we need to collect less and slash federal spending very, very deeply. Take away entitlements, federal funding of education, federal funding of damn near everything except national defense and essential federal infrastructure such as the superhighway system, and then with the mucho dinero more the average American will have, and the booming economy, people will be able to pay for health insurance and pretty much everything else out of their own pockets.

Government inefficiency, overhead and administration just RAPE the coffers before the money can be wisely spent--did I say "wisely"? LOL.

"Progressive" tax systems just slow economic growth and discourage investment. Heck if we slashed federal spending enough, the "working class" would have a lot more disposable income to invest. Instead, under the current system, the "working class" has to keep overpaying in tax for far less value than they receive in services. This keeps many of them struggling instead of breaking free, as they otherwise might through dint of their own hard work and diligence and saving/investment.

Whenever layers of bureaucracy, redistribution, and centralized control are added, a great deal of efficiency and VALUE must inevitably be lost. All this greatly reduces the total amount of wealth. Might as well be burning a huge chunk of it instead.

The government as nanny state must be one of the most inefficient and wasteful uses of money, time and resources ever implemented.

[jakethebake]

[ QUOTE ]
The fallacy in your free markets argument is that healthcare should be treated like a hamburger or a lawn mower. Most people would agree that healthcare, like education, police and fire protection and road construction are something that should be widely available to all.

[/ QUOTE ] They're wrong. Anyone that believes this is a communist. It's a service like any other, and should be paid for like any other. If you don't earn it, you don't deserve it.

[jakethebake]

[ QUOTE ]
IMO we don't need to collect more taxes, we need to collect less and slash federal spending very, very deeply. Take away entitlements, federal funding of education, federal funding of damn near everything except national defense and essential federal infrastructure such as the superhighway system, and then with the mucho dinero more the average American will have, and the booming economy, people will be able to pay for health insurance and pretty much everything else out of their own pockets.

Government inefficiency, overhead and administration just RAPE the coffers before the money can be wisely spent--did I say "wisely"? LOL.

"Progressive" tax systems just slow economic growth and discourage investment. Heck if we slashed federal spending enough, the "working class" would have a lot more disposable income to invest. Instead, under the current system, the "working class" has to keep overpaying in tax for far less value than they receive in services. This keeps many of them struggling instead of breaking free, as they otherwise might through dint of their own hard work and diligence and saving/investment.

Whenever layers of bureaucracy, redistribution, and centralized control are added, a great deal of efficiency and VALUE must inevitably be lost. All this greatly reduces the total amount of wealth. Might as well be burning a huge chunk of it instead.

The government as nanny state must be one of the most inefficient and wasteful uses of money, time and resources ever implemented.

[/ QUOTE ]Excellent post. I agree.

[MtSmalls]

Well then lets just get rid of Social Security, welfare, Aid to families with dependent Children, the VA, public schools, unions, consumer protection agencies and all the rest too.

I don't know about you, but do you REALLY want health care to be a lowest bidder affair??

[Non_Comformist]

What I love is I can read a natedog post in threads like this and then be done with it.

Excellent

[Non_Comformist]

[ QUOTE ]
Well then lets just get rid of Social Security, welfare, Aid to families with dependent Children, the VA, public schools, unions, consumer protection agencies and all the rest too.



[/ QUOTE ]

Sounds good

[lastchance]

I think you just called 65%+ of Americans Communists. There's a reason no one has slashed Medicare yet....