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Pearlstein: Health Care and Taxes on Benefits

Steven Pearlstein
Washington Post Columnist
Wednesday, July 15, 2009 11:00 AM

Washington Post business columnist Steven Pearlstein was online Wednesday, July 15 at 11 a.m. ET to discuss healthcare and the tax treatment of health benefits.

Read today's column: A 9-1-1 for Health-Care Reform: Send Leadership Now.

Pearlstein won a Pulitzer Prize in 2008 and is co-moderater of the On Leadership discussion site.

A transcript follows.

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West Palm, Fla.: Hello. Some are saying a tax surcharge on those earning $250,000 or more is, in reality, a tax on small business. Would you agree Steve this tax will disproportionately hurt the poor, and the small businesses, both of which are already struggling in this economy?

Steven Pearlstein: Many small businesses are taxed on their profits at the personal rate of the proprietor, but most people who pay that rate are not small business owners. Republicans and the business lobby like to forget that point, and argue that setting the highest rate really is a small business rate. That is a LIE, it is misleading and it is untruthful. Moreover, there is nothing that requires small businesses to pay the personal rate. They could just as easily incorporate, pay a profits tax of the profit that the owner leaves in the business and pay the personal rate on the profits he or she takes out of the business in salary and bonus. As to your question, capping the tax exclusion of health benefits won't hurt the poor, since the p[oor don't have health plans worth $20,000 a year. It may begin to pinch some middle class households with very generous plans. To avoid that tax, they could switch to less costly plans, or negotiate for less costly plans the next time there is a contract negotiations. Getting under the cap won't be hard at all. What it may mean is that they give up something, like choice (in moving to an HMO from a PPO) or facing more co-payments and deductibles (which will make them most cost-conscious users of medical services). All that is generally a good thing, and would be the reason for doing the cap -- to get the system more focused on eliminating unnecessary costs. All this is Health Reform 101.

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Des Peres, Mo.: Hey, Steve. If you were a betting man, do you think SOME form of health coverage will pass (yes or no), by when, and what way to pay for it do you think the two committees will reconcile on? Thanks.

Steven Pearlstein: I think the chances are less good than they used to be because Obama and the Democratic leadership took a powder on this issue. But they are still above 50-50. How it will be paid for: I think, in the end, some combination of a tax cap, a 1 percent income surtax, some forced cost reductions on providers, some small additional taxes on insurance companies and drug companies.

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Manhattan, Kan.: Hi Steve--I just wanted express my heart-felt thanks for the terrific column you posted today. Two weeks ago I was asked by the Kansas Democratic Party to write a letter to the editor of my local paper on the need to support health-care reform. In that letter, which was well received in my community, I discussed the need to contain health-care costs that were inflating at an unsustainable pace. I recognize that taxing Cadillac plans is an important way to control these costs. After learning of Pelosi's and Reid's pusillanimous reaction to the bipartisan proposal being advanced Senators Grassley and Baucus, I feel ashamed for lending my support to the Democratic Party. I can only hope that the folks on the Hill and in the White House will read your column and see this comment from a lifelong Democratic Party volunteer.

Steven Pearlstein: Thanks for writing in with that. I think I can say with near 100 percent certainty that Obama, Reid and Pelosi couldn't give a damn what either of us think, however.

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Why I hate the Democrats almost as much as the Republicans: Off they go: chasing Dick Cheney and all the ghosts of catastrophes past instead of working on fixing the real problems facing real working people and their actual living children and families (and becoming more like the even poorer people who are falling ever farther behind).

They are the mirror reflection of the crass inept political calculations of the republicans and as much of a cliche.

Are they serious that they think they can win re-election in the next 2 election cycles if they continue being so stupid and self-absorbed?

What do they think the election last fall was about if not CHANGE? Do they really think voters (not their special interest lobbyist patrons) are going to put up with more of the same old crap?

This nation's 'democracy' is a joke. All you people in Washington play the same old gotcha games while people elsewhere are going down the toilet to third world status (if they're able to survive)-- with the powerholders in wall street and Washington holding their hands on the flusher.

I don't think your cohorts and the powerholders you all love to hate and play games with have a clue how seething the anger is down here in the hinterlands.

Steven Pearlstein: Not sure how to take that, exactly, but thank you for sharing.

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Austin, Tex.: All the discussion I hear about universal health care seems to focus on paying for more of the same rather than reducing costs and improving outcomes. We could save tremendous amounts of money by instituting best practice standards, requiring hospitals to pay for treatment of hospital-acquired infections, having nurse practitioners provide primary care, providing preventive care, I could go on and on. But I don't see any serious proposals or legislation that attempt to reduce costs.

Steven Pearlstein: All the health reform proposals moving through Congress have very serious, very good efforts to do just what you suggest -- and more. That's not the problem politically. Experts now know what to do, there is a lot of consensus around those items, and they are included in the reform. What is more difficult are a couple of hot-button issues, some of which are central (how to force everyone to be covered by insurance and how to do pay the short-term cost for doing that) and some that are interesting but less central (whether there should be a public plan and what it should look like). All the parts, however, interact with each other, which is why designing this thing is very tricky.

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Mike, N.J.: Steve,

Does the House leadership not care that they'll cripple small business (especially S Corps and sole proprietorships) with their legislation? We were supposed to be the ones they championed, not forced to pay more. This will absolutely force me to lay off 1 or 2 of my 5 employees since my payroll is over the $350,000 but I can't afford to offer insurance in my new small business.

Small business makes up 2.5 million jobs in America. What does NFIB have to say about this? I can bet they're not happy.

Steven Pearlstein: Mike, I wrote a column last week explaining why I think you are wrong. You say you cannot afford to pay anything toward insurance. Question: do your competitors? If they do, then is the fact that you take business from them attributable to the cost advantage you derive from not paying insurance -- and if so, is that a good way to organize a competitive market economy? And if your competitors are like you and don't pay for employee health benefits, then a requirement that all of you do so at the same time merely raises your input costs together. The way competitive markets respond to that is that you all raise your prices, as you do, for example, when the price of a key raw material or energy goes up. Now I know you will say that your customers won't tolerate a price increase, but that is silly. They don't buy your goods or services because they like you, they buy them because they need them and you offer the best value. And if all your customers raise their prices along with you, you will still offer the best value for those customers. The only problem may be that in raising your prices by a SMALL PERCENTAGE, customers might buy a bit less than before. But that depends on the elasticity of demand of whatever you are selling. In general, however, the percentage reduction in sales would be considerably less than the percentage increase in prices. You might not like that, but I doubt it would drive you out of business -- and in any case, is no bigger than other factors out of your control that you deal with on a constant basis as a business owner. But please, let's stop this nonsense that by phasing in a modest employer mandate the entire US economy is going to come to a grinding halt. It is just not true.

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Laurel, Md. Would taxing health benefits create an incentive for large employers to provide more health care in-house, hence reducing the direct monetary cost associable with individuals?

Also, would taxing benefits create a differential burden on workers in high-health risk occupations?

Steven Pearlstein: The answer to your first question is no, because the health services provided by employers is also a form of compensation, is taxable to the employee and would be covered under a cap. The answer to your second question is that workers in high health risk occupations, if they are concentrated in a small risk pool, might need to have a higher cap. That's one of those details that I suggested needs to be worked out.

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Ann Arbor, Mich.: If the choices for financing reform of the health system came down to introducing a value added tax, taxing present medical benefits, or introducing a surtax on upper income taxpayers, which would you prefer, and why?

Steven Pearlstein: We need to raise taxes on upper income households from current levels in order to balance the budget. That money is really spoken for for another purpose. I'd raise the top marginal rate to 40 percent, raise the LONG TERM cap gains rate to 20 percent and SHORT TERM cap gains rate to 40 percent and increase the amount of earned income that is subject to the two payroll taxes. At the same time, we should try to pay for health care reform from sources within the health care sphere, like the cap on health benefits. I agree with the Senate Finance Committtee approach on that. Moving to a value added tax is a big deal, because it would add yet another bureaucracy and another layer of complexity to the overall tax structure. It might be necessary, at some point, as part of an overall tax reform and simplication effort which also produces lower marginal income tax rates and a lower corporate tax rate.

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Washington, D.C.: I haven't seen any discussion of how universal health coverage programs, whatever form they take, will affect and be affected by illegal immigrants. Any thoughts?

Steven Pearlstein: Hot button issue for which there is no easy answer. My preference would be to require everyone to have health insurance if they are here and not use that as a mechanism for identifying and deporting illegal immigrants. Otherwise, we'd get into those situations where doctors and hospitals will be put in very difficult positions of having to deny urgent care to people because they are illegals. That makes a lot of us uncomfortable.

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Baltimore, Md.: Put aside the merits of this "Health Surtax" for a moment. Why is this being presented as a "surtax"? It's a couple of new brackets tacked on at the upper end of the income scale. Why the euphemism? Did some focus-group like "surtax" better than "new tax bracket"?

Steven Pearlstein: They use surtax because the hope is that if health care reform eventually produces the cost savings that it should to the federal government, then there would be a trigger and the tax would come off.

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Tuckahoe, N.Y. : When I asked you last week about Goldman Sachs and the brutal Matt Taibbi article about them, you brushed it all off with the comment "I don't believe in conspiracy theories." You don't have to believe anything that Taibbi wrote, but a lot of people, including Spitzer, seem to think there is something there. What is your own take on what this 'investment bank' has been doing?

Steven Pearlstein: I honestly don't know enough to have a thought. I don't believe that there is a well-oiled conspiracy to rig the market and public policy in favor of this one firm.

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I'm Appalled: A FORTY-FIVE percent top tax rate (again)? Really? I'm furious that people in the House seem to be doing the "easiest fix" by taxing people instead of taking on the actual, structural challenges that make health care so unaffordable. Instead of actually fixing anything, they are charging the people who have nothing to do with why this awful system is the way it is. Explain to me why we can't just do health insurance the same way we do car insurance? Why is the most creative answer lawmakers can come up with is taxation? How about being courageous and trying to make hard decisions and change the structure of things instead of going for the easy way out?

Steven Pearlstein: You are right: its hardly a profile in courage for Democratic leaders in the House to make the "painful" decision of adding a surtax for the rich. Why stop at 45 percent? Since they have all the money, how about 60 percent? 70 percent? Why not 90 percent? Think of what we could do for infrastructure and health care and education and converting every building into a green building! the possibilities are endless. It's also a fantasy. You start to get federal, state and municipal income tax rates above 50 percent and people start to get serious about tax avoidance. And we know that can be quite successful.

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Washington, D.C.: Steven,

I didn't get a chance to write in last week, but I'd like to comment about health care costs and small businesses.

Twice the last ten years, I've worked for two small, professional businesses (government contractors/consultants). By small, I mean under 100 current employees.

In both instances, I had great health insurance with very minimal (to zero!) premiums for some of the best plans available. Both companies I've worked for were, at some point, acquired by larger companies with the promises that benefits would continue at their current levels or get better as they are able to leverage being a bigger organization. In both instances, my fellow employees and I were lied to: benefits - specifically health insurance - shifted, were reduced, and the costs skyrocketed.

My point is this: The quality of the health care provided by an employer isn't based on size, it's based on the employer's commitment to their employees and the bottom line.

Steven Pearlstein: That is true. As a general rule, however, the same policy has premiums that are 25 percent higher when sold to small businesses. That's not always true -- it depends on the composition of the workforce. If you have 100 people at a firm almost all of whom are under 30, you can get a very cheap rate.

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Silver Spring, Md.: Steve, If you adopt community rating (adjust for age, health status and area costs -- an adjustment mentioned but not fully addressed in your column), removing the tax exclusion will become a broad-based tax on half the population with above average costs in their health insurance plans, i.e., a tax on the middle class. This group is already suffering from lost savings, lost buying power and high unemployment. How is it more progressive to tax this group to pay for the uninsured rather than to tax wealthy individuals and the companies that don't provide health insurance, which was in the House bill introduced yesterday?

Steven Pearlstein: In thinking about tax breaks, you have to ask yourself in supporting one why everyone else who doesn't get that break, or doesn't get as much of it, should be subsidizing those who do. That's based on the logic that, if you eliminated the tax break completely, you could reduce everyone's tax rate by some amount. So my question to you is why should people who have health policies that are below the cap subsidize people whose health policies are more expensive and above the cap?Just because you raise taxes on the middle class, it's not always a bad thing, since you'd be lowering tax on other people in the middle class. The fact is that you can't give a good reason for that kind of cross subsidy, which as a general matter favors rich people since they are the ones with the generous health plans. Not always -- some unionized middle income workers have them as well. But as a general proposition, half the benefits from the tax exclusion of health benefits go to the top quarter of households, and if you were to cap it, the distribution of the "pain" would be even more progressive than that. Nobody is saying we shouldn't tax the wealthy as part of an effort to pay for health care. Capping tax exclusion of health benefit is a tax that falls disproportionately on the rich. Check it out. You just want to exclude anyone who is middle class from that, as if you know that ALL middle class people are struggling. Here's a little fact: they aren't.

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Washington, D.C.: Call me cynical, Steven, but here's my prediction on health care:

Nothing of substance will get done. It won't be for a lack of trying by some, but the fact is that the real reform necessary isn't going to be achievable until there is a mass pandemic that ends up killing millions of people. Only then will our leaders - and the majority of silent Americans - realize that our current system is completely broken and requires serious federal attention.

Why is it going to take such a drastic event to create real reform? Because the only way we're ever going to have a chance of stopping such plagues in the future is with universal care - and that simply isn't going to happen under any plan that makes it through Congress. We aren't going to see a public plan - not the best solution, but an adequate solution for the time-being - make its way to the president's desk.

What's happening on the Hill is a total farce because Congress is, sad to say, still beholden to the interests of the industry.

Steven Pearlstein: I'm not as cynical as you are, but there is plenty that has happened over the recent years to support such cynicism.

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Washington, D.C.: So, I see Obama caved to the unions on health care reform. Instead of taxing those "gold plated" health benefits we hear so much about, which would actually help people understand the true cost of their health care decisions, Obama proposes a surcharge on the rich, which will hit small businesses the most.

In one move, Obama has shown he is nothing more than a stooge of the 9 percent of the country that are union members....as opposed to the 91 percent of us that aren't.

What George W. was to giving away to businesses, Obama is to giving it all away to unions.

Steven Pearlstein: Obama has not proposed a surtax on the rich, as the House Democrats have. He has proposed paying for health reform in part by limiting the financial benefit of all tax deductions taken by the rich by applying them against that portion of income that is taxed at the 28 percent rate rather than highest marginal 35 percent rate. I know that sounds complicated, because it is. And it would only apply to people with incomes above 250,000. So it is another form of raising taxes ont he rich, but one that will get all sorts of new interest groups howling up on Capital Hill (like non-profits). That's why it was a non-starter in the House.

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Annandale, Va.: Once again Mr. Pearlstein, you've proven yourself to be tone deaf on the health care debate. The union's "gold plated" benefits were purchased with a lot of blood, sweat and sacrifice -- many, many workers over the years have forgone higher salaries to ensure adequate health benefits. Don't ask the unions to jump off the cliff first when there's no indication that anyone in the health industry or even the GOP is willing to bargain in good faith.

You want leadership? Real leadership would be authoring a column calling out for a single payer system instead of the chicken answer that it's not "politically viable". You know they said the same thing about the civil rights act of 1964 and yet LBJ made it happen.

Steven Pearlstein: There is nothing that prevents unions from giving up some of their health benefits in the future in response to the changes in the tax code, and getting taxable wages instead. In fact, that is what you would want them to do, which would be a good thing for the health system, since it would make members more sensitive to the cost of the health care services they are consuming. Just make a different tradeoff.

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Arlington, Va.: When is Obama going to have to finally admit that his campaign pledge to not raise taxes on those making less than $250,000 was wrong and irresponsible. We'll never balance the budget if we can only tax the rich. Now they're talking about taxing only the top 2 million to fund health care reform. This will eventually backfire, no?

Steven Pearlstein: I agree. From a policy standpoint, it was a stupid pledge. It also buys into the Republican rhetoric that taxes are always bad and that people can have all the government services they want and get somebody else to pay for it. It's all driven by David Axelrod and the political advisers. And its wrong.

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Binghamton, N.Y.: Would a payroll tax, such as the way the government funds social security, be a possible way to fund health care? B.Pello

Steven Pearlstein: We already have a payroll tax that funds Medicare. It may be time to raise that a tad as one source of funding, but that would be raising a regressive tax unless you changed the structure of the payroll taxes to exempt the first, say, $10,000 of income -- and then raise the caps on the income on which the payroll taxes are levied. I've always liked that idea.

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Anonymous: Making people pay taxes on health care would give people a better idea of their total compensation and what their effective tax rate is. There is always a lot of discussion on marginal tax rates, which is fine, but little on effective tax rate and that is skewed because I think it looks at AGI vs. taxes paid. I think firms should provide employees a breakdown showing salary & benefits received during a year, it might open some eyes.

Steven Pearlstein: Many do that, in fact, so employees will stop grumbling about how stingy companies have become on health care. They don't realize that, even with the increased worker payments, the costs are going up even more for the employers in many instances. Which gets us to the nub of the problem -- excessive utilization and health care cost inflation.

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New York, N.Y.: Well said, but it wouldn't be Wednesday if I couldn't comment on something you wrote. You stated that due to the tax treatment of health insurance we've become cavalier about the amount of healthcare we consume. I know this is part of it, but the real reason we consume so much healthcare is that we want and feel entitled to the most advanced treatments and interventions, at a moment's notice.

In many respects this is good, as it drives industry to be innovative and drives science to be inventive. However, unless we go down the very slippery slope of deciding when we're going to deny 95 year old granny a hip replacement or an extended hospitalization after a stroke, we're still going to have ever escalating health care costs. We're going to have to make some difficult choices about what we're willing to pay for and under what circumstances. I hope we don't get too involved in playing God, unlike the Europeans who do not nearly have the same respect for human life as we do.

I'm all for taxing every dollar individuals receive in health benefits because I think it will bring some economic reality and efficiency into the picture (not to mention raising lots of money to help the uninsured). But this is still just a small step in the larger picture.

Steven Pearlstein: In theory, I agree with you. In the world of practical politics, that would get too many people up in arms and cause a backlash. Best to chip away at it gradually with a cap that rises only with general inflation, not average premium costs.

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Boston, Mass.: Is it realistic to expect individuals to "do their own shopping" on healthcare "purchases"? Wouldn't there be a multitude of uncertain choices starting with what is the diagnosis (and what tests are needed to determine this diagnosis)? Which tests are necessary and what do these tests cost at different facilities? Different doctors may come to different diagnoses--which is correct? Once you've chosen which diagnosis to follow what is the right course of treatment as there may be differences of opinions on how to treat the same diagnosis. What are the costs of these different treatments at different facilities and what are the outcomes for those facilities (quality of care)? Sure knowing more about the cost of care is all well and good (and who doesn't these days with co-pays and employers dropping premium benefits) but this is not like buying tires for your car, right?

Steven Pearlstein: Its not reasonable to expect people to do price shopping on most health services -- brain surgery, for example. But some things are more amenable. We know that providing tiering in drug formularies has "encouraged" people to shift rather dramatically toward lower cost and generic drugs. We might do the same with diagnostic testing services, where you could save money by traveling a little farther to a less expensive clinic. We could even do it with some procedures -- say childbirth -- where with different co-payments you could encourage women to go to specialized hospitals that have both lower costs and better, proven outcomes and more sophisticated docs and equipment if something goes wrong, rather than insisting on the hospital near their homes. So don't rule out the possibility of getting a bit more price competition and price consciousness into the system.

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Clifton, Va.: Mr. Pearlstein,

Have you ever run a business or worked for small business? Its nice to get your academic or journalistic point of view but in my experience journalists and the MSM have no clue about what a small business owner does and the battle he fights. have you ever held a real job outside of journalism or consulting?

If you haven't then you really need to shut up about small businesses since you don't have a clue!

Steven Pearlstein: Yes, I started, owned and ran a small business.

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Arlington, Va.: Steve: Just to understand--are you opposed to the House bill because it proposes to finance reform by the tax surcharge on the wealthy as opposed to taxing health benefits?

Steven Pearlstein: I don't prefer that funding mechanism. Would I vote against the bill if that were the only choice? Probably not.

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Mount Horeb, Wis.: I am coming around to the point of view that health insurance benefits should be subject to income tax. However, not all premiums are created equal.

Your employer can offer the same policy to all employees, but the premiums for older employees are usually much higher than for younger employees.

So even though all are getting the same coverage, the older employees would possibly end up paying a higher tax, if it is based on the premium paid.

Or do you suggest that the tax be levied on the policy benefit?

Steven Pearlstein: There should be some variation in premiums on the basis of age, but this should be quite limited. I'm a believer in community rating, which when combined with an individual mandate means that you overpay for health insurance when you are young and underpay when you are old but it all averages out over a lifetime. That seems fair to me.

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Anon: I make about $280K, which I know sounds like a lot to most people. I own a relatively modest 4-BR home (bought, unwisely perhaps, toward the end of the bubble) and 2 American cars (slightly higher end, but nothing ostentatious). By the time student loans, the piggyback mortgages and the bills are paid, there's not much left. For those living in the coastal blue-state cities, what the politicians are calling "rich" is not rich by any stretch.

Steven Pearlstein: Yes, but I doubt you'd trade it for life in rural Arkansas.

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Washington, D.C.: "Steven Pearlstein: We need to raise taxes on upper income households from current levels in order to balance the budget. That money is really spoken for for another purpose. I'd raise the top marginal rate to 40 percent, raise the LONG TERM cap gains rate to 20 percent and SHORT TERM cap gains rate to 40 percent and increase the amount of earned income that is subject to the two payroll taxes. At the same time, we should try to pay for health care reform from sources within the health care sphere, like the cap on health benefits. I agree with the Senate Finance Committtee approach on that. Moving to a value added tax is a big deal, because it would add yet another bureaucracy and another layer of complexity to the overall tax structure. It might be necessary, at some point, as part of an overall tax reform and simplication effort which also produces lower marginal income tax rates and a lower corporate tax rate."

I think that a value-added tax is becoming an absolute necessity, and this is coming from a person that was adamantly opposed to one earlier. There just doesn't seem to be any appetite among the general public to pay for all of the government services that they want and the politicians seem absolutely reluctant to either raise taxes (except on the very rich) or cut services/benefits. A value-added tax has the benefit of at least spreading the tax burden more widely. I am still blown away by the fact that almost 50% of tax filing units in the U.S. have no tax liability (i.e., either pay no taxes or receive a tax credit) Source: Tax Policy Center.

Steven Pearlstein: Tis true about the personal income tax. You may be right.

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To Mike, N.J.: Mr. Pearlstein, I just want to float a radical notion: maybe a business that can't function unless the employees of said business get no benefits and likely have real lousy wages just isn't worth sweating over. I hope that one thing that comes out of this health care debate is that we shouldn't be racing to the bottom, as those who are creating low income, no-benefit jobs want to have us do. Tax this guy out of existence for all I care.

Steven Pearlstein: Let's not be nasty now.

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Herndon, Va: Mr. P: You deserve another Pulitzer for today's column. I fear though it will land with a slight thud on Congress, and will be ignored. There aren't enough politicians left with the guts to tell the voting public that change and reform aren't free. Russell Long's "don't tax you, don't tax me, tax that man behind the tree" still holds. Just like social security and tax reform, no real reform in health care will come until we're at a total disaster stage - and the cost then will be far greater than now.

Steven Pearlstein: Funny, I was going to lead the piece with that famous Russell Long quote. It is so apt. Thanks for bringing that up.

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Houston, Texas: Pearlstein: I'm just grateful you are not in the House or Senate... given your viewpoints expressed here, the American people would be taxed at levels well above 50% and your attitude would be "so what, they'll figure out scams and schemes to get around paying taxes, so let's tax the hell out of them." Per your previous post - I hope that Obama and Pelosi AREN'T listening to you. I've worked hard to get to my level of income and I'd like to enjoy the rewards of that and not hand it over for "redistribution".

Steven Pearlstein: I don't know where you get the idea that I want tax rates above 50 percent. Just the opposite, in fact.

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New York, N.Y.: With regard to any tax on high-income earners being described as a "tax on small-business". My understanding is that these small businesses are using S-Corp, LLC, or LP pass-through taxation entities, and are thus taxed at the personal level.

Why doesn't Congress just change the taxation of these entities so that profits can still be reported on a Schedule K on a personal 1040, but the taxation rate is different than income earned through salary (similar to how capital gains and income are both reported on a 1040, but have different rates)?

This would seem to solve the argument.

-A Small Business Owner

Steven Pearlstein: I sort of said the same thing above: The reason small businesses are taxed at the personal rate is that it allows them to avoid the "double taxation" of both corporate and capital gains/dividend tax. But in a small company, that's not really a big factor. If a small corp. were to pay all of its profits out to its owner in a bonus, there wouldn't be double taxation since there would be no corporate profits.

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small risk pool: General insurance question: Which is more efficient, many small pools or one large one?

Steven Pearlstein: large one. Efficient doesn't always mean lowest cost, however. If Google employees were to be put in a community rated risk pool, their insurance premiums would go up while the rest of the community's would go down. Why? Because they are all young and eat healthy and consume, on average, very few health services.

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Central Mass.: A reformed health care plan is estimated to cost, say, a trillion dollars over 10 years. But that's not all new spending, correct? "We" - workers, employers, state and federal governments - spend billions per year now. Won't a lot of those funds get rolled over and redistributed under a reformed plan?

Steven Pearlstein: There would still be an increase in utilization, because people without insurance also don't get a lot of regular preventive service and even some urgent care that they need. In fact, some of them die unnecessarily. Also, all the reform plans have subsidies to help low income people who now don't have insurance buy it and pay for it. Those subsidies would also be extended to people who currently now buy insurance without the subsidy.

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RE: Appalled: Steve, You belittle the House Democrats for raising the marginal rate in your response to Appalled, yet just a few questions earlier you suggest raising the marginal rate to 40% yourself. I guess you're not showing much of a Profile in Courage yourself.

Steven Pearlstein: Need the money for other purposes, like balancing the federal budget. They, of course, want to raise marginal rates to 40 percent and then add their surtax on top of that. And that's where I think they are going too far, because when you add a 10 percent state and local income tax on top of that, you're getting to 50 percent, which is something of a tipping point in terms of tax compliance.

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young healthy people: have babies and that is a huge burden to the health care system

Steven Pearlstein: Trust me, they are cheap.

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50% of tax filing units in the U.S. have no tax liability: I am sure you are just talking about income tax which if you are not poor is the most important tax, But if you are poor, other taxes are much more onerous.

Steven Pearlstein: Exactly, like payroll taxes.

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McLean, Va.: Tell me what's wrong (intellectually, not morally) with this analysis: Heath care is a commodity. We don't like to admit that, but like legal services or child care, that's what it is. You don't have a right to it, and you don't have a right to the best quality of it. If you're rich, you can afford more and better care than if you're poor.

If that's correct, then ok -- go ahead and move my employer-paid benefits to the taxable column. But beyond that, leave it alone.

Steven Pearlstein: Actually, its not like any other service. There is something of a moral right to it, as we know when somebody shows up without insurance and the emergency room and we don't let them die.

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Steven Pearlstein: That's all the time we have today, folks. Good discussion. "See" you next week.

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