The Fox News Health Care Reform Calculator
January 24, 2011
Fox News recently put up an online calculator that purports to show individuals their personal share of the cost of health care reform. CBO, in its final score of the reform bills, put the total gross cost of the new coverage provisions at $938 billion from 2010 to 2019. The calculator is designed to show you how much of that $938 billion you are personally responsible for. It’s an interesting idea, but the calculator has several flaws that should be corrected.
I’ll start off with a general criticism: The calculator is unclear about what it’s actually showing. It’s meant to show costs over a specific time period – ten years – but most will miss that fact since it is in the detailed description at the top of the page.
Additionally, the calculator does not estimate your specific personal share of the cost, but rather puts you into one of seven income groups and then gives you the average cost for people in that group. That’s a fair approach but it should be made clearer to users. Some of the text actually undermines that effort, with statements like “Taxpayers earning $55,000 pay 18% of the all (sic) taxes collected.” What it should say is, “Taxpayers earning between $50,000 and $99,999 pay 18% of all [federal income] taxes collected.”
A general aesthetic criticism concerns the two bars below the pie chart that show the total cost of the health care bill alongside “Your Taxpayer Share.” But they’re not comparable to each other – $938 billion is many orders of magnitude higher than any number that could be produced in the “Your Taxpayer Share” area.
More problematically, Fox doesn’t describe their methodology in detail, making it hard to figure out how they arrive at the numbers they do. From what I can tell, here’s how it works. Let’s say I enter an income of $125,000. The calculator places me in the $100,000 to $199,999 income category, which, according to Fox and its pie chart, is collectively responsible for 22.7% of all income taxes paid. I think it then takes that 22.7%, multiplies it by the $938 billion cost of the bill, and divides by the number of people in that income category, to arrive at the “Your Taxpayer Share” figure – $11,585.11, perhaps a too specific number.
This approach has its problems. First, dividing everyone up into seven discrete categories can distort the answer. It’s less of an issue for the lower income groups, but it’s a huge problem for the $250,000+ group. This group includes both people making $250,000 a year and much wealthier people who may earn hundreds of millions of dollars per year. That upper part of the group drives up the average considerably, and gives a misleadingly high figure for most people in the group.
The calculator also misses the fact that less than half of federal revenue comes from the individual income tax; about a third comes from payroll taxes and a further significant portion comes from the corporate income tax and various excise taxes. The pie chart needs to account for all of these sources of income to demonstrate fully how much of federal spending a particular group is responsible for. Someone making less than $14,999 may not owe much income tax, but they do pay payroll taxes, and their collective contributions to federal revenues is larger than the 0.2% suggested by looking at income taxes alone. Likewise, corporate income taxes are ultimately borne by individuals. Such a complete accounting of all sources of federal revenue would alter that pie chart considerably.
Finally, the bill that enacted the health care changes also contains revenue offsets. So while the bill will cost $938 billion over ten years, there are also a series of tax increases and spending cuts that exceed $938 billion, which if the projections are accurate, would result in a net deficit reduction. While there is considerable controversy on this point (see this interesting calculator from the Heritage Foundation here, for example), there are at least some costs that are not being paid for by higher income taxes. The tax increases include an excise tax on “Cadillac” health plans, a general fee levied on insurance providers, reductions in allowable spending under HSAs, an increase in the Medicare payroll tax for high-income earners, and the “tanning tax.” The spending cuts are largely to Medicare Advantage programs.
These changes should be included in the cost of healthcare reform, but Fox’s calculation does not include any of them. While it is true, in an abstract sense, that the revenue raised by these various new tax increases isn’t specifically earmarked for new health care spending, money is fungible. It’s reasonable to argue that federal revenues all go, more or less, into one big pile. But even if that’s the framework you’re thinking in, the calculator’s distribution of tax burdens in the pie chart would not contain the tax changes enacted in the health care bill. I should also note that the average costs, which the calculator presents, are not the same thing as marginal effects of the new taxes and spending cuts. The burden of these changes is distributed to all Americans in a certain way, and that distribution has no relationship to the current proportion of income taxes paid by particular income groups.
There are many valid reasons to oppose (or support) the health care reform that passed last March, and it’s important that we have that debate with accurate numbers.