House Dems Gonna Tax the Rich for Health Care

While the Senate kills any hope of any real health care reform, it looks like the House is gonna stick it to the rich. This happens to have been the original campaign promise.

House Democrats agreed yesterday to raise taxes on the wealthy to pay for a sweeping expansion of the nation's health-care system, proposing a surtax on the highest earners that could send the top federal tax rate toward 45 percent.

Beginning in 2011, the plan would target all income over $350,000 a year for families and $280,000 a year for individuals, Democratic sources said. The surtax would start at 1 percent, rise to around 1.5 percent for families earning more than $500,000, then step up again, to around 3 percent, for families earning more than $1 million, Democrats said.

That would raise about $550 billion over the next decade, Democrats said -- about half the cost of reforms that are expected to cost about $1 trillion. The surtax percentages could rise two years later, they added, if lawmakers think additional cash is needed to cover the cost of health-care reform.

Now some good things here might happen. Firstly, a few CEOs now might be trying to nail the health insurance companies since they will personally be footing the bill. Secondly our powerful elites again, might be willing to confront the health care industry profit that it directly picks at their pockets.

Assuredly better than yet another regressive tax and considering the wealth disparity in this country, a long time coming.

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Sounds like a good idea.

But I wonder if it will have any real fiscal impact - raise revenue. I am trying to find any study that examines whether rich people have more opportunities to shelter/shield/hide income than less wealthy people.

If so, then marginal tax rates don't mean anything because rich people's effective tax rate may be much lower. This is what makes the tax system regressive. Warren Buffet use to use the example that it is not fair that he pays less in taxes as a percentage of income then his secretary. That is not fair but this is the tax code/system we operate under.

We need to change the focus from a policy perspective from marginal tax rates to the effective tax rate. Maybe, if we simplified the tax code and eliminate various tax schemes our tax code would be more progressive.