Tax Options to Finance Health Care Reform

June 19, 2009

Congress is looking for money to finance health care reform designed to lift more Americans from the ranks of the uninsured. And it appears that multiple options are on the table. Here’s a summary from an AP Story by Erica Werner:

The tax options include:

– Increasing the price of soda and other sugary drinks by 10 cents a can.

– Applying a potential 2 percent income tax increase to single taxpayers earning more than $200,000 a year and households earning more than $250,000.

– A new employer payroll tax could target 3 percent of employers’ health care expenditures.

– Taxing employer-provided health insurance benefits above certain levels – a less likely option but one that still is in the running.

Also mentioned in the story were the following options:

– Higher alcohol taxes

– Increases to the Medicare payroll tax

– Value Added Tax (VAT)

So which of these are the most and least defensible from a sound tax policy perspective? The most defensible are limiting the exclusion of employer-provided health insurance (which should already be done) and the new employer payroll tax that would tax employers’ health care expenditures. The VAT is a broad-based option and if you aren’t going to go after the employer-provided favorable treatment, it would seem to be the next best option.

Then you get into the targeted tax hikes that arbitrarily pick certain groups of people to pay for health care reform. Unless you believe that there is not enough income redistribution already, a new tax on the rich just to pay for more health care for predominantly low-income people isn’t sound tax policy. And finally, higher alcohol taxes and higher taxes on soda to merely pay for more health care for low-income people are policy proposals that are not rooted in any sound public policy logic. If soda and/or alcohol impose costs on third parties, they should be taxed accordingly. But they shouldn’t be arbitrarily chosen as items to be taxed merely because you need to raise more revenue. That’s tyranny.


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