How Can We Fund Health Care and Other Human Needs? August, 2009 Public Policy and Education Fund, Fiscal Policy Institute, New Yorkers for Fiscal Fairness,

2 What We’ll Discuss 1. Why are new federal revenues needed? 2. What taxes are being considered to fund health care reform (and other needs)? ● What would be most fair and what would make the most sense?

3 How Much Will Health Care Reform Cost? Cost of reform for first ten years = $600 billion (Senate HELP bill) to roughly a trillion dollars (House bill) A trillion is more likely!

4 Coming Up With the Trillion Dollars: Health Care Savings Won’t Be Enough Examples of the most significant savings the House is considering: Savings from Medicare, e.g. reductions in provider payments reductions to Medicare Advantage Estimated savings under the House Bill (HR 3200) of reform for first ten years = Roughly a half trillion dollars We can’t get around it: we must raise revenues for the other half trillion dollars. The real questions: what kind of taxes & who has to pay?

5 New York Needs Federal Dollars for Other Needs Too Jobs: 25.8 million unemployed or underemployed as of May: 16.4%. (NY: 8.7% unemployment rate as of June) Education: Nearly one in five people aged hasn’t finished high school In recent years (since 2000), federal funding has always been at least 30% of state revenues

6 Where Do Our Federal Tax Dollars Really Go To? Source: Congressional Budget Office, 2008.

7 Federal Funding is Critical for All New Yorkers Road construction; infrastructure Education and student aid for college Environmental clean-ups Medical research After-school programs for our kids Much more…

8 Investing in Quality Programs Works! Early childhood: Children attending universal pre-Kindergarten: earn more during their lifetimes achieve higher achievement scores in school have lower numbers of arrests as adults

9 For health care to work for all of us, we must invest in it too! How we invest matters…

10 What About the Federal Deficit? The Bush Tax Cuts + Defense Increases = Big Deficits Source: Center on Budget and Policy Priorities calculations based on Congressional Budget Office data.

11 Bush Tax Cuts President Bush’s tax cuts will have cost the U.S. Treasury at least $2.5 trillion by next year. Who benefited?

12 Top 1% Richest Americans People who are now making $476,000 a year or more…. Received one-third of the Bush tax cuts An average of $52,122 a year

13 Middle 20% of the Income Range People who are now making between $33,000 and $54,000 a year…. Received just 8.4% of the Bush tax cuts An average of $665 a year

14 Bottom 20% (low-income) People who are now making less than $19,000 a year…. Received an estimated 1% of the Bush tax cuts An average of just $80 a year

15 How Do We Avoid the Same Mistakes Again? We should use sound tax principles. We need taxes that: 1. ADEQUATELY fund programs that help everyone 2. Are RESPONSIBLE, and don’t saddle future generations with unsustainable debt 3. Are FAIR, based on peoples’ and businesses’ ability to pay

16 Progressive Taxation the more money you make, the greater the share of your income the tax is (income taxes) vs. regressive tax: the less money you make, the greater the share of your income the tax is (sales tax)

17 Funding Health Care Now that we’ve discussed how we got to where we are, and went over some basic tax principles… Let’s look at the tax proposals to fund health care!

18 How Do Congress and the President Propose to Pay for Health Care? Who:What:Who does it effect: House (proposed – HR 3200) Income Tax Surcharge Individuals who make over $280,000; families who make over $350,000 Senate (under consideration) Tax Employee Health Benefits Workers Senate (under consideration) Increase “Sin” taxes (alcohol, sweets, etc.) Consumers Obama Administration (budget proposal) Limiting Itemized Deduction (home mortgage, interest, etc.) Wealthy taxpayers who itemize

19 House Proposal: Income Tax Surcharge Surcharge on couples with incomes above $350,000 and individuals with incomes over $280,000 Amount of surcharge: 1% of AGI above $350,000/$280, % of AGI above $500,000/$400, % of AGI above $1,000,000/$800,000 progressive tax

20 House Proposal: Income Tax Surcharge (continued) Would raise around $543 billion over 10 years raises about one-half the amount needed for health care reform (rest would come from health care savings) this $543 billion amount is less than the $700 billion that the 1% richest Americans received from Bush tax cuts Only 1.8% of taxpayers statewide and less than 1% (0.7%) of upstate NYS taxpayers would pay it If upstate were its own state, only Arkansas, Mississippi & West Virginia would have a smaller percentage of impacted taxpayers!

21 Possible Senate Proposal: Tax on Employee Health Benefits Currently, the amount your employer pays for your health insurance is not taxed – either to the employer or employee Senate Finance Committee is considering taxing some portion of this amount This could raise a lot for health care reform Estimates of how much it would raise: from $354 billion to $722 billion (large amount)

22 Possible Senate Proposal: Tax on Employee Health Benefits (cont.) Big problems: might discourage employers from offering health insurance might cause the young and healthy to “opt out” of getting insurance unions, others oppose because some versions of the proposal in effect involve giving back negotiated benefits President Obama opposed this idea in his campaign HCAN and labor groups are also opposed Some progressive policy groups disagree, saying there are ways to limit the negative impact on taxpayers other than those with the highest income and most generous health insurance policies

23 Another Possible Senate Proposal: Raising “Sin” Taxes New/more excise taxes on unhealthy products like tobacco, alcohol and fattening foods (“sin taxes”) Examples of sin taxes being considered: excise tax on alcohol: could raise $61 billion over 10 years sugar sweetened beverage tax: could raise $51 billion over 10 years (e.g. non-diet soft drinks, fruit drinks, energy drinks, iced teas and sweetened coffees) Some health policy groups support because of the positive impact on health, and because we need to fund health care but: regressive clearly doesn’t pay for reform without other revenue measures

24 Obama Proposal: Limiting Itemized Deductions for Rich Idea: limit the tax savings for each dollar that wealthy people can save on their income taxes for each dollar of deductions Proposal is progressive: Right now, the system of deductions is unfair (regressive): a middle income family (who itemizes) saves 15 cents of each dollar they deduct, while a rich family saves almost 40 cents Only about 1.2% New York taxpayers would be impacted Would raise over $260 billion over 10 years.

25 Proposals for Funding Health Care: Progressive or Regressive? WhoWhatType of tax; amount it raises House (proposed – HR 3200) Income Tax Surcharge Progressive $543 billion Senate (under consideration) Tax Employee Health Benefits Depends $354-$722 billion Senate (under consideration) Increase “Sin” Taxes (alcohol, sweets, etc.) Regressive $112 billion Obama (budget proposal) Limiting Itemized Deduction (home mortgage, interest, etc.) Progressive $260 billion **Amount all proposals would raise: $1.3 to $1.6 trillion (only $500 billion needed)**

26 Other Funding Alternatives Senate Finance “Policy Paper” mentions, for example: limiting or eliminating tax benefits for “Flexible Savings Accounts” and/or “Health Savings Accounts” tightening requirements for non-profit hospitals to be exempt from taxation Bottom line: we can afford to fund health care reform and other human needs!

27 The Cost of Doing Nothing If we don’t fix health care: our annual health care expenditures nationally will go from $2.3 trillion to $4.3 trillion in less than a decade (2017)

28 Summing Up We can afford health care and to fund human needs – it’s really a matter of political will Just the 4 proposals we’ve presented will raise $1.3 trillion to $1.6 trillion over 10 years – far more than the $500 billion needed from taxes And there are many other revenue proposals out there! And we can do it without hurting low and moderate income people (through progressive taxation – rich pay their fair share for once!) We need to do it to build a just society (health care, education, jobs, greater income equality) And consider the cost of doing nothing

29 Selected Sources Center on Budget and Policy Priorities Coalition on Human Needs United for a Fair Economy Citizens for Tax Justice/Institute on Taxation and Economic Policy Economic Policy Institute Urban Institute Kaiser Family Foundation Various Congressional Committees; Congressional Budget Office