Taxing the Rich To Pay for Health Care, Part Three

By Conor Clarke

I've been getting a lot of email from Dish readers about the House's plan to pay for health care by imposing a surtax on wealthy Americans. In a future post I'd like to write about why I prefer the option that seems to have the most traction in the Senate: limiting the deduction for charitable giving. But I do think -- once we learn to buck up and live with the fact that taxes always create deadweight loss and additional transaction costs -- that the wealth surtax is hardly the fifth horseman of the apocalypse.

Anyway, onward and upward with the emails. One reader writes:

Isn't the point that Krugman and others make that money spent on a "national health care plan (that includes a government-run public option)" and "deficit reduction" is not fungible -- i.e., not equivalent? If I understand the viewpoint correctly, establishing a public-option health care plan will drive down health-care costs by forcing non-governmental providers to become more efficient in response to competition with the government, reducing the percent of GDP the nation spends "needlessly" on inefficiencies, freeing up that future GDP for reduction of deficit.

I don't disagree with this. What I meant was that the revenue options are fungible (i.e. interchangeable), not the spending options. (If all policy options were equivalent, then the progress of this adversarial two-party system has been seriously misguided for quite some time.) What I found strange about the Washington Post editorial was that it assumed we couldn't tap one particular source of revenue now because we'll need to tap it later. I continue to think that this argument is complete nonsense: If we want to reduce the deficit and reform health care, a dollar from John Q. Richperson will be just as good as a dollar of payroll tax revenue. So, either the Post's objection is to the level of spending, or it's no objection at all. Moving right along:

Do you know of any data on the total [as opposed to federal] effective tax rate for the top 1%?  I know there would be considerable state-by-state variation, but is there some way to summarize the total tax burden borne by the richest over the last decade or two?  This seems likely to be a crucial point in the upcoming debate, and good data will be crucial.

I believe Citizens for Tax Justice gathers this data, and I once wrote about it here. But I'm not kept awake at night worrying about state taxes and the top 1%. State taxes (for labor mobility reasons, among others) tend to be far less progressive than federal taxes. When you add state taxes to the mix, the effective rate paid by the richest 1% only changes by about, well, 1%. One more email:

But, aren't high incomes in fact very unpredictable, particularly for the next few years? What happens if the expected revenue falls short? Does the tax go even higher, or will the bill just add to the deficit? Is the goal to pass a bill that CBO will score well, and then deal with the real revenue options later?

My understanding is that, if the revenue falls short, the bill will simply add to the deficit. But this is a congressional procedure question and I'm bored to tears by those things. Does anyone else know?