Health plan may be harder to fund than thought

Freedom New Mexico

After a period in which his administration declined to get too involved in the details of a planned major overhaul of the way health care is delivered — presumably to avoid the mistakes of the first Clinton administration when Congress was presented a detailed plan concocted largely behind closed doors and didn’t bite — President Barack Obama is now taking a more personal interest in the subject.

Not surprisingly, his emphasis has been on securing additional revenues to pay for more government involvement, and he went immediately for the oldest trick in the book.

In some ways Obama is to be commended for his frankness. The general inclination in Congress is to want to pass new programs and not worry too much about how they will be paid for.

Obama knows providing health insurance to some 40-50 million people without such insurance will cost a lot, and while some administration spokespeople talk about finding efficiencies that will reduce the cost of health care overall, government’s record at reducing the cost of things in which it is intimately involved is hardly sterling.

Consequently Obama is flirting with two ideas: taxing the health insurance and other benefits employees receive as taxable income, and reducing the amount that “the rich” can deduct from their income before paying taxes to 28 percent, compared to the ability of those currently in the highest brackets who are especially aggressive (or especially generous to charities) to deduct 36 percent to 39.6 percent from their gross income.

This impulse trades on a widespread perception that those in the highest tax brackets pay virtually no income taxes due to clever tax shelters and other accounting tricks. A recent Investors Business Daily poll found that 36 percent of Americans think the rich pay 10 percent or less of all federal income taxes.

In fact, Internal Revenue Service data show the “rich” (depending on how they are defined) pay much more than that already. The top 1 percent of earners, making more than $388,806 a year, pay 40 percent of all income taxes. The top 5 percent, making more than $153,542, pay 60 percent.

Some 30 percent of Americans, mostly in lower income brackets, pay no income tax at all.

One can argue this is only fair, that those who have benefited most from the opportunities available in America should pay more to support government activities. The problem is this resource has been tapped pretty thoroughly already.

A pervasive belief among those who seek to expand government responsibilities and powers is that new programs can be paid for easily simply by “soaking the rich.” The first problem is “the rich” are already paying a disproportionate share of federal income taxes. The second is they have more resources and abilities to find ways to avoid taxes.

Some rich people really do pay virtually no income taxes. If the marginal tax rate on wealthy people is increased again, you can predict that many more will pay lobbyists to create and accountants to find loopholes to reduce their liability. The net result could easily be no increase in revenue and — surprise! — proposals to raise taxes on everybody.