Uncharitable Tax Tactics on Health Reform
If the uninsured can't count on the do-gooders to help them, where else can they turn?
The question arises because certain leaders of the sector of our society devoted to civic endeavors moved this week to block a perfectly reasonable way of raising some money to extend health coverage to those who don't have it.
At issue is a proposal by a number of senators, including Jay Rockefeller and John Kerry, to cap tax deductions taken by the well-to-do. Their suggestion wouldn't even unsettle existing deductions, and it is far more limited than a sensible idea along the same lines put forward earlier by President Obama.
With the Bush-era tax cuts set to expire in 2011, the marginal rate on the top income bracket is scheduled to rise from 35 percent to 39.6 percent. This affects only families with taxable incomes of roughly $370,000 a year or more.
To help pay for expanded coverage, the senators are proposing that the itemized deductions taken by those with high incomes be capped where they are now. So beginning in 2011, people in the top bracket who made charitable contributions would have them offset against taxes by 35 cents on the dollar, not 39.6 cents. People in the next bracket down, $210,000 to $370,000, would still get a bigger deduction than they do now. The plan is estimated to raise about $90 billion over a decade.
At the beginning of the year, Obama proposed limiting the deduction to 28 cents on the dollar, which would have raised more than $300 billion and solved much of the health-care financing problem.
But Obama's idea was shot down, and now, a group of charitable leaders -- including representatives from the Council on Foundations, the American Association of Museums and, shockingly, the American Institute for Cancer Research -- wants to kill the new proposal, too.
"With so many Americans relying on the charitable sector," they huffed in a letter released on Monday, "now is simply not the time to jeopardize the charitable gifts that are so important to its strength."
There's precious little evidence that this small tax change would dent charitable giving, and there's also a problem of logic: When the Bush tax cuts went through, these groups did not complain that charitable donors would be able to deduct only 35 cents on the dollar. If that was so awful, these groups had nearly a decade to say something. They were silent. Why are they now screaming that 39.6 cents is a sacrosanct amount?
Far worse is the signal this sends: If even groups whose very mission is public-spirited can't take an exceedingly modest risk to extend health coverage, how can we expect anybody else to pay a little more for a moral imperative? In fact, it seems that almost every group is resisting almost every proposal that would pay for health care.
Health reform will fail if it includes a mandate that everyone buy insurance but does not provide subsidies large enough to make coverage affordable for Americans in the middle and lower-middle ranges of income. Yes, costs would be held down with a public option, or at least a trigger to create an alternative government plan in markets that lack real competition. But with or without a public option, decent subsidies are essential.
Subsidies cost money -- one reason it's unfortunate that the president put an artificial ceiling on the cost of a bill at around $900 billion over 10 years.
Nearly everyone forgets a crucial fact: This money will not be added to the deficit. Congress is trying to write bills that finance themselves, and Obama has said he'd veto any bill that didn't. The real cost of doing this right is probably closer to the $1.2 trillion price tag in the bipartisan proposal put forward earlier this year by former senators Bob Dole, Tom Daschle and Howard Baker. But whatever number Congress finally agrees on, the subsidies have to be sufficient and they have to be paid for.
This means that liberal interest groups need to be open to revenue ideas that are not their first choice, such as some form of taxation on high-end health plans. It also means that moderates claiming deficit-hawk credentials cannot pretend that unpleasant tax increases can be avoided by holding down costs at the expense of the uninsured and underinsured.
If anyone should understand this, it's the leaders of our charities. Perhaps they will be charitable enough to reconsider their position.