Instead of trying to tweak legacy systems for taxation and for health and retirement benefits, I suggest an overhaul which combines universal health care, a simple flat income tax, and a sustainable Social Security system.
Under current law, the projected rate of growth in entitlement spending on Medicare, Medicaid and Social Security far outstrips the projected rate of growth in GDP. Unless corrected, this situation will result in an exploding national debt.
US healthcare expenditures per capita are roughly double those of other developed countries. Yet, our healthcare outcomes are objectively worse. Obamacare is a patchwork healthcare solution grafted onto an underlying dysfunctional system of employer-based health insurance. The cost of private health insurance continues to soar. When individuals change jobs they often have to change health care providers and when they lose their job they may lose coverage altogether. As we have seen, employer-based health insurance is also subject to the odious scenario of employers imposing their religious or personal beliefs on the health care coverage they provide to their employees.
Meanwhile, the US tax code is riddled with loopholes introduced by a bevy of special interests. These loopholes enable legalized tax evasion by a favored few and force higher rates on everyone else.
I propose the following to address these problems:
Healthcare Provide basic universal health care through a Medicare for All system including an expanded Medicare Advantage system in which private insurers compete with traditional Medicare. All plans (traditional Medicare and private insurers) would receive the same government payment per subscriber – adjusted for demographic factors and pre-existing conditions. Basic health care would be free except for modest co-payments to discourage abuse. Medicare would set the minimal benefits required of all plans. In distinction to current law, Medicare would be able to consider cost-effectiveness in deciding which diagnostics and treatments to cover. Private insurers would have an incentive to negotiate pricing with providers and to provide additional benefits to attract subscribers. The budget for the overall health care program would be tied to the growth in GDP and managers of each plan within the program would have to adjust policies to stay within their budget. Medicaid would no longer be needed – relieving states of their substantial costs in supporting that program and thus enabling states to lower their tax rates. Individuals would be free to purchase supplemental health insurance to provide additional benefits beyond what is covered under the new Medicare for All program.
Personal Income Taxes Establish a single global tax rate. Replace all current taxes paid by employees and employers on wages (income, Social Security and Medicare) with a flat tax withheld by employers equal to this global rate applied to pre-tax wages. Similarly, all interest and dividends paid to individuals would be subject to taxation at the same global rate – this tax would be withheld by the payers. There would be no deductions or exemptions of any kind. Any subsidies that the government might decide to provide to individuals would have to be done openly, paid directly and not hidden in the tax code. Under this system the vast majority of Americans would not need to file an income tax form. Only individuals who are self-employed or have sources of income other than wages, interest, and dividends would have to file a tax return. Such other income, including capital gains, would be taxed at the global rate.
Corporate Income Tax In calculating earnings, allow corporations to deduct legitimate corporate expenses as well as dividends. Eliminate all special exemptions and deductions. Should the government choose to subsidize any corporate activities this would have to be done openly, paid directly and not hidden in the tax code. The corporate tax rate on earnings would be set at the single global rate.
Retirement Social Security costs would be controlled by gradually increasing the retirement age to reflect increased longevity.
The above overhaul would eliminate many of the abuses and complexities of the current tax, health and retirement systems. The current employer-based health care would be replaced with a system of basic health care for all. This system would take advantage of competition between health plans, including traditional Medicare, to control cost and improve services. Employers would no longer have to be in the healthcare business. Employees would no longer have to stay in dead-end jobs merely because the jobs provide healthcare benefits - as a result entrepreneurial activity would be encouraged. Health care plans would be subjected to the discipline of a pre-specified budget.
No longer would trillions of dollars of expenditures be hidden in the tax code; all government expenditures would have to be explicitly appropriated.
The precise value of the global tax rate would have to be computed to generate adequate revenue. Taking into account the increase in expenditures to accommodate the expanded health care system, a back-of-the-envelope calculation indicates that the new rate would be in the vicinity of 25 percent. Wage levels would need to be subjected to a one-time upward adjustment to reflect the fact that all taxes would now be explicitly withheld from wages rather than being charged separately to employees and employers and the fact that employers would no longer be paying for healthcare. For lower income wage earners the taxes on their wages would be significantly less than the current combination of income tax, employer and employee Social Security and Medicare taxes plus employer and employee contributions to purchasing health insurance. Increased tax burden would fall most heavily on upper income individuals who currently use loopholes to escape taxation. If needed, the government could provide additional direct subsidies to low income individuals.
The system proposed above would be far simpler, less subject to abuse, and provide comprehensive basic healthcare and a retirement safety net for all. Individuals, corporations, expensive lawyers and accountants would be able to spend their time on more productive activities than gaming the tax system. The plan may be attractive to liberals who favor true universal healthcare and to conservatives who favor a far simpler broad-based tax system.