Skip to: Content
Skip to: Site Navigation
Skip to: Search


Gov. Peter Shumlin holds a news conference following the Supreme Court decision on Obamacare in this June 2012 in Montpelier, Vt. The law remaining in place is expected to mean Vermont's health overhaul will be helped by up to $400 million a year in federal tax credits and other subsidies. But if enough people refuse to buy into coverage, it could drive up premiums for everyone. (Toby Talbot/AP)

Will enough people buy into Obamacare?

By Guest blogger / 07.05.12

Earlier this week, I concluded that the Affordable Care Act’s tax on those who do not have health insurance will be both modest and difficult for the IRS to collect. But will it be enough to encourage people to buy coverage?  If not, healthy people may opt out until they get sick, a decision that could drive up premium prices for those who do buy coverage.

If past experience is any guide, the vast majority of people will get insurance—mostly because, well, having health insurance is a good idea. Besides, government will subsidize premiums for many. But will this mix of subsidies and taxes be enough to avoid the sort of adverse selection problems that some economists fear could wreck the system?

They were in Massachusetts, where 86.6 percent of people were insured just before that state’s health reform passed in 2006 (under the leadership, of course, of then-governor Mitt Romney) but 94.2 percent were covered in 2010.   

There are some differences between the environment in Massachusetts and the nation at large. For one, the Bay State was starting from an uninsured rate of about 13 percent prior to its health reform law—about one-fifth lower than the national rate, which was 16.3 percent in 2010.

The Romneycare tax is roughly similar to  Obamacare’s—though the two levies are not directly comparable. In Massachusetts, the tax is adjusted for both age and income but maxes out at $1,260-a-year. The ACA tax is only $95 for an individual in the first year but due to rise to $695 ($2,085 per family) or 2.5 percent of adjusted gross income in 2016. The maximum penalty under the ACA is equal to the price of the low-cost insurance option under the law—much higher for wealthy households than the Massachusetts tax.  

Btw, notwithstanding Romney’s latest rather convoluted explanation of why the federal levy is a tax while the Massachusetts penalty is not, this distinction eludes the Bay State itself. The state’s own website describes it this way: “Residents without health insurance face a tax penalty.”

Other jurisdictions also use penalties/taxes to enforce an individual mandate for the purchase of health insurance. Switzerland and the Netherlands, for instance, have achieved 99 percent enrollment that way. However, both countries impose far more onerous penalties than either the ACA or Massachusetts.

In the Netherlands, for instance, the tax penalty is a steep 130 percent of premium cost.  In other words, it costs much more to reject coverage than to buy the insurance. 

My best guess is the ACA’s combination of subsidies and tax penalties will drive significant enrollment. But there are some weak links in the law.

The first is the relatively modest tax and the constraints on the IRS’ ability to enforce it.  

The second was created by the Supreme Court, which made it possible for states to reject Medicaid expansion—a mechanism that The Urban Institute’s Health Policy Center projected would cover about 8 million low-income people who are currently uninsured. Many could not afford insurance even with the ACA’s subsidies, though some may be subject to penalties for not buying.

I also suspect that some tea party-types may organize protests against the ACA—encouraging people to refuse to buy insurance or pay the tax. And imagine commercial products aimed at the same goal: “Learn the Secret of  Beating the Obamacare Tax. Send $29.95 now.”

Would such a movement drive enough people to reject insurance so prices for the rest of us would rise significantly? Probably not, but it is hard to know. Still, it will be yet another challenge to this far-reaching, but controversial, law.        

In this June 2012 file photo, House Minority Leader Nancy Pelosi of Calif., smiles as she watches the breaking news from the Supreme Court which upheld the Affordable Care Act, on Capitol Hill in Washington. It looks like a tax, smells like a tax, and the Supreme Court says it must be a tax. (J. Scott Applewhite/AP)

Obamacare's 'tax' is mostly bark, not bite

By Guest blogger / 07.05.12

The Affordable Care Act’s tax on those who choose not to buy health insurance was the linchpin of the Supreme Court’s decision to uphold the law’s constitutionality. But in reality, the tax (nee penalty) is a mouse.

The tax itself is modest, at least to start. It will affect relatively few people. And it will be almost impossible for the IRS to make anybody pay it.

The Urban Institute’s Health Policy Center estimates that if the law were in effect today, only about 7 percent of the non-elderly, or about 18 million people, would be faced with the choice: Get insurance or pay the tax. To put it another way, 93 percent, or 250 million, would not—either because they already have insurance or because the ACA explicitly exempts them from the levy.

But that doesn’t mean that 18 million will owe the tax. Many will buy insurance rather than pay the fee.  About 11 million, or about 60 percent of those subject to the tax, will be eligible for government subsidies to buy their own coverage.

For some, that help will still not be enough to make insurance affordable. And about 3 percent of those under 65—or about 7 million individuals–will have to acquire insurance and pay the full cost. Many in those two groups may choose the tax rather than insurance.

Keep in mind these estimates are subject to much uncertainty. For instance, some employees will lose their employer-sponsored health insurance as a result of the ACA while others will get new coverage. Sorting that out is challenging, but Urban’s projection is consistent with others.

Then, there is the amount of the tax. In 2014 the initial levy will be just $95. By 2016, it is scheduled to increase to $695 or 2.5 percent of taxable income—up to a maximum of $2,085 (indexed for inflation in subsequent years). It will increase, that is, if Congress does not slow the phase-in. And I’ve got a funny feeling about that.

Overall, the congressional Joint Committee on Taxation estimates the tax would generate about $54 billion over eight years (assuming the tax rises as scheduled). Not nuthin’ but pretty modest as these things go.

Finally, there is the issue of whether the IRS can collect the tax if someone refuses to either buy insurance or pay the fine.  The ACA says the IRS should enforce the law by imposing a tax penalty—but then effectively blocks the agency from using most of the tools it normally uses to go after tax scofflaws.

The ACA bars the IRS from bringing a criminal enforcement case against someone who refuses to pay the non-insurance penalty. And it makes it very difficult, if not impossible, for it to enforce a tax lien. Law professors Jordan Barry and Bryan Camp have a nice piece in Tax Notes explaining it all.

That leaves only one tool—the IRS can subtract the penalty from any refund it owes a taxpayer. But that applies only if the IRS happens to owe somebody a refund. These days, two-thirds of taxpayers get one, but it is usually their choice.

Only low-income households who receive refundable credits, such as the Earned Income Credit, always get refunds. But the ACA specifically exempts most of them from the tax because their income is so low.

Bottom line: Notwithstanding the nutty Internet rumors that the IRS is hiring 20,000 revenue agents to collect the tax, most people who really want to game the system will probably get away with it.

Of course, this creates a big problem.  The law requires insurance companies to sell to all comers regardless of pre-existing medical conditions. But if the tax fails to encourage healthy people to buy right away and not wait until they need coverage, the rest of us will end up paying higher insurance premiums as a result.

And that’s the trouble with this entire mechanism.  The Supreme Court calls it a tax. President Obama and Mitt Romney’s chief spokesman insist it is a penalty. But here’s a better label—inadequate.

Mark Dugan, left, an assistant secretary in the Kansas Department of Health and Environment, discusses contracts awarded to private companies to manage the state's Medicaid program, as Susan Mosier, right, KDHE Medicaid services director, watches in this June 2012 file photo. States are now deciding if and how to adapt their Medicaid programs in light of the Supreme Court's ruling on health care reform. (John Hanna/AP)

Medicaid and the states: An offer they (still) can't refuse?

By Tracy GordonGuest blogger / 07.03.12

For months, astute observers called Medicaid the “sleeper issue” of the Supreme Court’s Affordable Care Act deliberations.  Last Thursday, they were proven correct.  A majority of the Supreme Court struck down a provision of the law giving the Health and Human Services Secretary authority to pull all federal Medicaid funds from states refusing to extend eligibility to low-income, non-elderly adults.

The ruling was surprising for several reasons.  First, starting with land grants for public colleges and universities and continuing through to the interstate highway system and social safety net, the federal government has a long history of conditioning state and local grants on acceptance of its rules.  A prime example is federal funding for K-12 education under the No Child Left Behind program.

This is also how Medicaid has operated since its inception in 1965.  At the time, Congress explicitly reserved to itself the “right to alter, amend, or repeal any provision.”  Indeed, it has exercised this right several times, expanding eligibility to low income pregnant women and various groups of children in the 1980s and 1990s.  Some expansions came with carrots (promises of extra money) and some with sticks (threats to existing funds).

But the majority held that this expansion was different, not just tinkering around the edges but fundamentally changing the program’s identity.  What’s more, because Medicaid has grown so big (it was states’ single largest budget item in FY 2010, including federal funds) and so much a part of state law, giving the HHS Secretary discretion to yank federal funds amounted to an order, even an existential threat (a “gun to the head” or “your money or your life” proposition). 

But the same could be said of the federal tax code, which provides states with various expensive goodies (deductibility of state and local taxes, exemption of muni bond interest from federal income taxes) and whose very existence is a huge subsidy (because states can piggy back off of federal definitions and administration).  Numerous budget commissions and task forces have put these subsidies on the chopping block, and at a recent hearing Senator Max Baucus suggested he might do the same.  Are these changes now also off the table?

Moreover, in both cases, this symbiosis between states and the federal government developed over time because states said “yes” to federal support.  With Medicaid, this relationship was severely tested in the Great Recession, when states had to plug massive budget holes but could not cut Medicaid eligibility because of federal program requirements.  Several state Medicaid finance directors openly discussed rejecting federal funds to get out from under these requirements.

However, quitting Medicaid was never a real possibility. States needed the money to take care of individuals who would otherwise go untreated and care that would go uncompensated. 

Now, as then, states will take the federal money, especially in light of longer term fiscal strains like rising health care and retirement costs.   This won’t be easy.  As with any federal grant program, subsidies set out in the Affordable Care Act (100 percent, declining to 90 percent in 2020 and thereafter) are not guaranteed over time. 

Another source of uncertainty is what the newly eligible population, and others who come out of the wood work, will look like.  Evidence from Arizona suggests some low cost young adults and some higher cost near-elderly with chronic health needs.

Some governors and lawmakers have already said their states will decline to participate in the Medicaid expansion.  But eight states have already gotten started on extending eligibility through waivers programs and another three are in the queue.  Notwithstanding the highest court in the land, the whole Medicaid package is still an offer states can’t refuse.

This artist rendering shows Chief Justice John Roberts, center, speaking at the Supreme Court in Washington, Thursday, June 28, 2012. The Supreme Court upheld President Obama's health care act by ruling it's mandate a constitutional tax. (Dana Verkouteren/AP)

Verdict’s in: SCOTUS upholds passel of health care tax provisions

By Guest blogger / 06.29.12

In its long-awaited decision on the Affordable Care Act, the Supreme Court has ruled that Congress can require people to either have health insurance or pay a tax if they don’t.  

Because the High Court found that the penalty for not having coverage is a tax and not a fee or a banana, it ruled Congress has the constitutional authority to impose such a levy. In effect, the 5-4 decision written by Chief Justice Roberts concluded that Congress can tax you for failing to acquire insurance. Thus, the mandate as created by the ACA is constitutional.

But the Court rejected the White House’s main legal argument—that Congress has the authority under the Commerce Clause to require people to get insurance. It will be interesting to see how legal scholars read this in the coming weeks: Is the Court saying that tax policy is the only tool Congress has to enact certain social welfare programs? If so, it would put an already-stressed tax code under even greater pressure.  

The 5-4 decision is very complex. With dissents and concurring opinions, it runs 193 pages. Chief Justice Roberts joined Justices Ginsburg, Breyer, Sotomayor, and Kagan to uphold the ACA. Four justices—Thomas, Scalia, Alito, and Kennedy—concluded that the entire ACA is unconstitutional.

Oddly, while the Court ruled the no-insurance penalty is a tax for the purpose of determining its constitutionality, it also said that it not a tax for other purposes. A law called the Anti-Injunction Act says that no-one can sue to stop the collection of a tax until after they have paid it. And some argued that the ACA was not ripe for legal review since no-one has yet paid the fee. But the Court concluded that, since Congress never called the penalty a tax, the law it not subject to the Anti-injunction law.      

The ACA includes a number of tax provisions—only a few of which are related to insurance reform.

Among them:

The tax on those who don’t have health insurance. The key to the individual mandate, this provision would penalize those who do not have insurance starting in 2014. The penalty begins at $95 and phases up to a maximum of $695 or 2.5 percent of income by 2016.

Subsidies for buyers. These subsidies are aimed at helping low-income households purchase individual insurance through the health exchanges created by the law. The subsidies are effectively refundable tax credits managed by the Internal Revenue Service.

Small business tax credits. These subsidies, initially up to 35 percent of an employer’s premium contribution, are already in effect. The subsidy gradually phases out as the firm’s average wage and the number of its employees increase.

Medicare payroll tax. Starting in 2013, the ACA raises the Medicare Part A payroll tax by 0.9 percent for those making $200,000 or more (couples making $250,000).  

Taxes on unearned income. The law also imposes a new 3.8 percent tax on investment income and other unearned income for wealthy households, also starting in 2013.

Increasing the threshold for itemized medical expenses. Today, taxpayers can deduct medical expenses that exceed 7.5 percent of adjusted gross income. The ACA raises that threshold to 10 percent beginning next year.

Taxing high-value employer-sponsored health plans. Technically imposed on insurers, the law sets an excise tax on individual coverage that exceeds $10,200 or family coverage of more than $27,500. The levy, effective beginning in 2018, is equal to 40 percent of the premiums that exceed these thresholds. Because it is indexed by the rate of the consumer price index (which rises more slowly than medical costs), the tax will gradually apply to less generous policies.    

Other revenue raisers. The law includes a number of other minor taxes intended to help pay for the health coverage expansion. These include new penalties on Health Savings Accounts, limits on Flexible Savings Accounts, and an excise tax on indoor tanning salons.

The Court upheld all of these taxes with the rest of the law (except for a requirement that states expand their Medicaid coverage for the working poor).

The political fate of the ACA remains to be seen, of course. But the Supreme Court has at least settled the dispute over whether it is constitutional.   

Erskine Bowles and Alan Simpson, co-chairmen of the National Commission on Fiscal Responsibility and Reform, testify before the US Joint Select Committee on Deficit Reduction during a hearing on Capitol Hill in Washington in this November 2011 file photo. Their plan couldn't buy a vote when it was announced, but politicians have recently started trotting out their own, drastically edited versions of the proposal. (Jonathan Ernst/Reuters)

Congressional senior moment? Flip-flopping on Bowles-Simpson

By Guest blogger / 06.26.12

Have you noticed that as the details of the tough budget reform proposed by Alan Simpson and Erskine Bowles fade into memory, more politicians are embracing the plan developed by the chairs of the 2010 White House fiscal commission?

Oh, they don’t love the real plan—barely any elected official had a kind word to say about it when it was first proposed. But they are positively enamored of their own self-edited versions—usually with all the tough stuff conveniently deleted.  

Psychologists sometimes talk about “ecstatic memory”—an idealized recollection of some past event. Imagine, for example, guys at their college reunion gleefully reminiscing about that bender they went on senior year. In reality, they awoke with blinding hangovers in some cheap motel room. But in their memory, it was an evening filled with great music, beautiful women, and an all-around good time.

That’s a bit like what’s going on with Bowles-Simpson.  

No more than a handful of politicians have ever been willing to publicly support the actual plan, with all its gory details. The proposal would have reduced the deficit by $4 trillion over 10 years, including $2.2 trillion in unpopular spending reductions, $1 trillion in unpopular tax hikes and the rest in interest savings.  

You’ll recall President Obama said approximately nothing when the chairs of his own fiscal commission made their recommendations. Key congressional GOP leaders who served on the commission—including House Ways & Means Committee Chairman Dave Camp (R-MI) and House Budget Committee Chairman Paul Ryan (R-WI)–voted against the report.   

As recently as last March, the full House had a chance to vote on the plan. It got 38 votes—16 Republicans and 22 Democrats.

But now, it seems the plan has all sorts of new friends. Just a couple of weeks ago, Treasury Secretary Tim Geithner told the Council of Foreign Relations that the path to fiscal sustainability “began” with Bowles-Simpson. Remarkably, he added that President Obama’s own budget “although it differs in slight — in small respects from that basic framework, is very close to that basic design.”   

Sure it is, except for the tax and spending parts.

Mitt Romney is another fan—absent the details. For instance, he embraces the bit of the plan that would cut individual tax rates to 28 percent. But he conveniently forgets that overall Bowles Simpson would have raised taxes by nearly $1 trillion over the next decade, increased rates on capital gains, and scaled back tax subsidies for home mortgages, charitable gifts, and employer-sponsored health insurance while wiping out tax preferences for nearly everything else.

Romney says he’ll slash tax breaks to pay for those low rates too. But unlike Bowles-Simpson, he won’t say how. Maybe he shares their plan for cutting preferences. Only he isn’t telling.

And that’s the real problem. Bowles and Simpson told people just what they’d do. And that’s exactly what politicians avoid at all costs. Instead, like those drunken college boys, they prefer to reminisce about the old days that never were. Or in the case of Bowles-Simpson, a budget plan that never was.

Rep. Paul Ryan, R-Wis., looks on during a campaign event with Republican presidential candidate, former Massachusetts Gov. Mitt Romney at Monterey Mills on Monday, June 18, 2012 in Janesville, Wis. Ryan has said he supports a version of a consumption tax. (Evan Vucci/AP)

Taking a new look at an old consumption tax

By Guest blogger / 06.22.12

Twenty-five years ago, Princeton economist David Bradford designed what he called the X Tax. The idea–a progressive consumption tax–generated lots of discussion among tax experts. Wonks loved it for its elegant simplicity though there were (and are) real questions about how the tax would work in an increasingly international economy and how it would treat financial services.

David’s idea never got much attention beyond the world of tax geeks.  But Bob Carroll and Alan Viard, in their new book Progressive Consumption Taxation: The X Tax Revisited (AEI Press 2012), are attempting to bring new attention to the design. Bradford, who was a senior Treasury official in the Ford Administration and a top economic advisor to President George H.W. Bush , died in 2005.

The X Tax is a consumption tax, essentially a European-style value added tax with a couple of key innovations.  Most important, unlike many consumption taxes, it is progressive. In effect, the X Tax divides consumption into two pieces—wages and business cash flow. Households are taxed on wages, but unlike a VAT, they pay at progressive rates rather than a single flat rate. Businesses pay one rate on their gross receipts, but get to deduct wages. The top individual rate is equal to the business rate.

Because it is fundamentally progressive, the X Tax addresses the most common criticism of consumption taxes—that they impose a greater burden on low-income households. This happens because people with lower incomes consume more of their money than the rich.

There are other ways to solve this problem. The VAT proposed by Mike Graetz, for instance, would give couples a tax exemption of $100,000 (and provide a rebate for those who owe no tax). Graetz, however, still retains both the individual and business income tax while the X Tax completely replaces the existing system.    

Economists will argue over which model makes more sense. But both are worth serious consideration when/if Congress really debates tax reform. Graetz can, and frequently does, speak for himself (with, among other things, great humor). Carroll and Viard deserve a lot of credit for being new voices for Bradford’s old idea.  

It is, btw, fascinating that so much of the debate over consumption taxes is among conservatives. These taxes are in extremely bad odor among most Republican politicians these days. Yet, House Budget Committee Chairman Paul Ryan (R-WI) and former GOP presidential hopeful Herman Cain (who could ever forget 9-9-9) both supported versions of such a levy. Bradford, of course, was an aide to GOP presidents. Graetz was a top Treasury official for the first President Bush. And Carroll and Viard are both known as conservative tax scholars.    

Bradford understood how controversial consumption taxes can be—that’s why he called his idea an X Tax. But whatever you want to label it, his design is worth consideration. There few new ideas in tax policy, so it never hurts to revisit one of the old ones. Thanks to Bob Carroll and Alan Viard for doing so.

Republican presidential candidate Mitt Romney speaks to supporters at the Holland State Park beach on Tuesday, June 19, 2012. When he wants to be, Romney is quite precise. His tax reform promises often hinge on technical but very important distinctions, so listen carefully. (Chris Clark/The Grand Rapids Press/AP)

Listen closely when Candidate Romney talks taxes

By Guest blogger / 06.20.12

When Mitt Romney talks about his plan for tax reform, he is very careful to say two things: He wants to cut tax rates, and he wants high-income households to pay the same share of taxes they do today. He said it again on Face the Nation last Sunday—a rare in-depth broadcast interview on a network not named Fox.

The first promise is easy to understand. But the second is more subtle. Romney is saying the rich should pay the same share of total tax revenue as they do now.  But he is not saying they should pay the same effective tax rate they pay today or that he’d exempt them from his rate cuts. Quite the opposite: His tax plan would make the 2001/2003 tax cuts permanent and further reduce rates, including for those at the top, by an additional 20 percent (bringing the top rate down to 28 percent).  

While Romney says he’d offset those additional rate cuts by scaling back deductions and other preferences for high-income households, he has not said how. Thus, based on what we know, his tax proposal implies that high-income households would pay much less tax than today.

This is what he said on Face the Nation: “One– one of the absolute requirements of any tax reform that I have in mind is that people who are at the high end, whether you call them the one percent or two percent or half a percent, that people at the high end will still pay the same share of the tax burden they’re paying now.”

In other words, if you put both pieces of Romney’s tax platform together, he could cut taxes across-the-board, including for the rich, while not reducing the current tax share paid by those at the very top of the economic food chain.  

To make this more understandable, let’s look at a few numbers produced by my colleagues at the Tax Policy Center:

Last year, the top 1 percent (those making an average of about $1.5 million) paid one-quarter of all federal taxes. The top 0.1 percent, who made an average of nearly $7 million, paid about 13 percent of all federal taxes. It is that share of federal tax payments that Romney would freeze.

That’s very different from freezing their average tax rates. For instance, last year the top 1 percent paid an average rate of 29.7 percent while the top 0.1 percent paid an average rate of 31.6 percent. Romney is not at all opposed to lowering those effective rates.

Indeed, if Romney does cut statutory rates across-the-board, the richest households would get the biggest tax reductions, in both dollars and as a share of their income. For instance, TPC estimates that without any offsetting reductions in tax preferences, Romney would cut taxes for those in the top 0.1 percent by more than $1 million, while he’d cut them for middle-income households by about $2,000.           

The GOP’s likely standard-bearer was fuzzy in his Face the Nation interview about who would be subject to the Romney Rule on tax shares. That could matter quite a lot when he decides how to reduce those tax preferences for high-income households.  

The world of the top 0.1 percent is vastly different from those in the top 5 percent, where households make $210,000 and up. Romney could, for example, freeze the tax share of the 120,000 households in the top 0.1 percent while reducing it for the nearly 6 million in the top 5 percent. And that implies that he’d raise the tax shares paid by lower income families.  

Many politicians are sloppy when they talk about taxes. But when he wants to be, Romney is quite precise. As a result, his promises often hinge on technical but very important distinctions. That’s why when Romney speaks, you should listen very carefully.

In this April 12, 2011, file photo, Medicare Administrator Donald Berwick gestures during an interview with The Associated Press in Washington. Many Americans may believe that Medicare is financed like Social Security. But this is just not true. (J. David Ake/AP)

Payroll taxes cover about a third of Medicare costs

By Guest blogger / 06.18.12

I get the impression that many Americans believe Medicare is financed like Social Security. They know that a portion of payroll taxes goes to Social Security and a portion goes to Medicare. So they conclude workers are paying for Medicare benefits the same way they are paying for Social Security benefits.

That isn’t remotely true, as new data from the Congressional Budget Office demonstrate.

In 2010, payroll taxes covered a little more than a third of Medicare’s costs. Beneficiary premiums (and some other earmarked receipts) covered about a seventh. General revenues (which include borrowing) covered the remainder, slightly more than half of total Medicare costs.

If you prefer to focus on just the government’s share of Medicare (i.e., after premiums and similar payments by or on behalf of beneficiaries), then payroll taxes covered about 40% of the program, and other revenues and borrowing covered about 60%.

In contrast, payroll taxes and other earmarked taxes covered more than 93% of Social Security's costs in 2010, and that was after many years of surpluses.

The difference between the two programs exists because payroll taxes finance almost all of Social Security, but only one part of Medicare, the Part A program for hospital insurance. Parts B and D (doctors and prescription drugs) don’t get payroll revenues; instead, they are covered by premiums and general revenues. But that distinction often gets lost in public discussion of Medicare financing.

As recently at 2000, general revenues covered only a quarter of Medicare’s costs. That share has increased because of the creation of the prescription drug benefit in 2003 and because population aging and rising health care costs have pushed Medicare spending up faster than worker wages. Over the next decade, CBO projects that premiums will cover a somewhat larger share of overall costs, while the general revenue share will slightly decline.

Note: For simplicity, I have focused on the annual flow of taxes and benefits. The same insight applies if you want to think of Social Security and Medicare as programs in which workers pay payroll taxes to earn future benefits. That’s approximately true for workers as a whole in Social Security (but with notable differences across individuals and age cohorts and uncertainty about what the future will bring). But it’s not true at all for Medicare.

Republican presidential candidate Mitt Romney gestures during a campaign stop in Cincinnati, Ohio, Thursday, June 14, 2012. Both Mitt Romney and President Obama have now aid out their visions for economic policy. Sadly, while both included plenty of criticism of the other guy, neither told us very much about how they’d actually govern. (Evan Vucci/AP)

Talking heads: Candidates have big speeches, little vision

By Guest blogger / 06.15.12

Yesterday, Mitt Romney laid out what his campaign said was his vision for health reform. Today, he followed that up with a talk on economic policy. And President Obama delivered a speech that his campaign promoted as a framework for economic policy. Sadly, while men both included plenty of criticism of the other guy, neither told us very much about how they’d actually govern.

First Romney: The former Massachusetts governor has this problem. He must find a way to convince voters that he has an entirely different idea for health reform than Obama who, of course, lifted his own version from none other than Romney.

So in an effort to put something new on the table, Romney proposed…well, he didn’t really propose anything at all. He recited a carefully-parsed version of the usual GOP talking points: Block grant Medicaid (a polite way of saying he’d cut the federal share of that program), make it harder for patients to collect damages for malpractice, and expand tax-advantaged Health Savings Accounts. He’d also create health exchanges that would somehow be different than the exchanges in the Affordable Care Act. Finally, Romney promised to “end tax discrimination against the individual purchase of insurance.”

That last idea is intriguing, but what does it mean?

In 2008, GOP presidential nominee John McCain proposed a bold plan to replace the tax exclusion for employer-sponsored health insurance with a refundable tax credit for individuals. The idea, which has broad support among economists and the backing of a few brave politicians, was sharply criticized by candidate Obama as a big tax hike.

So Romney, as is his wont, only talks about the easy part—boosting those tax subsidies to help individuals buy insurance. He says not a word about what he’d do about the current exclusion. Would he end tax discrimination by subsiding both individual buyers and those who get their insurance from their employer? Doing both would add tens of billions to the deficit. So how would he balance the budget too?

Now to Obama, who has had a rough couple of weeks: He doesn’t seem to know what to do about Romney, who is running the same kind of change campaign that Obama ran against the Washington establishment in 2008—a gauzy criticism of the status quo unencumbered by a real agenda. And the president–a master of that soaring change rhetoric– seems much less comfortable playing defense.  

So, to reframe the debate, Obama today delivered what was billed as a major economic speech. But, like Romney’s health talk, it was largely devoid of serious new ideas. Instead, the president seems to be running on a recycled version of last year’s stimulus proposal and echoes of his past budgets. You know the drill–subsidies for alternative energy, education, and basic research, modest new infrastructure spending, and tax cuts on firms that hire in the U.S. These ideas are not only old, they are small….

Obama says he is serious about fixing the deficit, but says only he’d raise taxes on companies that hire overseas and those individuals making $200,000 (couples making $250,000). No word on where his spending cuts would come from.  

It is surely true that Obama and Romney have very different views about the role of government and the nation’s future. But neither man is telling the full story of how he’d fulfill his respective vision. We know where they want to go, but not how they’d get there.    

Long ago, President George H.W. Bush was roundly criticized for lacking what he allegedly called “the vision thing.” Today, in the race between management consultant Romney and the ever-cautious Obama, we may again be watching a campaign with a large sinkhole where that policy vision is supposed to be.

Senate Finance Committee Chairman Sen. Max Baucus, D-Mont. speaks during a meeting on Capitol Hill in Washington in this February 2012 file photo. The Baucus tax reform plan is very different from the Republican's offering, as articulated by House Ways & Means Committee Chairman Dave Camp (R-MI). (J. Scott Applewhite/AP)

The great tax debate: Dueling Congressional tax proposals clash

By Guest blogger / 06.12.12

Yesterday, Senate Finance Committee Chairman Max Baucus (D-MT), who rarely gives public speeches, laid out his agenda for tax reform. Just for fun, I compared what Baucus told the Bipartisan Policy Center to a speech House Ways & Means Committee Chairman Dave Camp (R-MI) delivered just three weeks ago to a group of Washington lobbyists.

For optimists, there were some points of agreement. For example, both chairmen focused on the importance of a tax code that encourages economic growth and international competitiveness. Both said it is important for Congress to take a hard look at the individual merits of each of the scores of expiring tax preferences rather than mindlessly extending them as a group–as Congress always does.

But after that, the gulf between the two men is simply stunning. Baucus said flatly that any tax reform has to generate more money. “Deficits and debt are not just a spending problem,” he said, “We simply don’t raise enough revenue.”

Camp is in a far different place: “I can firmly say our goal is: One, block massive, job-killing tax increases; and, two—enact…comprehensive tax reform.”

Of course, one can try to parse Camp’s words and conclude that perhaps he’d support smaller, non-job killing tax increases (whatever they are). Or, perhaps, broadening the tax base is, in his fiscal theology, not a tax increase at all. But even this sort of close Talmudic reading still leaves a revenue chasm between Baucus and Camp. And keep in mind that the two chairmen are far more likely to seek accommodation across the aisle than many in their respective caucuses.

Revenue is not the only place where the two men differ. Camp and the House GOP caucus have set a very specific set of goals for a revised tax code: Set two individual rates of 10 percent and 25 percent; eliminate the Alternative Minimum Tax; and move the corporate tax to a territorial system, where the US would tax income generated only in the U.S.

For Baucus, this thinking is exactly backward. In his view, issues such as rates and structure should take a back seat to a broader, macro-economic aim: “We should think about what’s the real reason for tax reform. Why are we doing this?”

To that end, Baucus wants a tax code that reflects changes in both economics and demographics. So, for instance, he wants a revenue code that recognizes the rise of services and technology, and one that addresses the needs of single-parent households.

Camp may be thinking of these issues as well, but his main focus is those low rates.

Finally, there is the matter of short-term tactics. Camp and the House Republicans want a vote this summer on extending all of the 2001/2003 tax cuts. Most Senate Democrats, for their part, want a vote this summer on extending those tax cuts for all but the highest income households. But the always-cautious Baucus does not. He wants to avoid divisive partisan votes before the election.      

It is, of course, dangerous to take the public words of politicians too literally. And when given a choice between listening to what they say or watching what they do, it is always preferable to do the latter. But Camp and Baucus are serious guys in important positions. It never hurts to pay attention to what they have to say.

  • Weekly review of global news and ideas
  • Balanced, insightful and trustworthy
  • Subscribe in print or digital

Special Offer

Become a fan! Follow us! Google+ YouTube See our feeds!