Podcast: High-Income Surcharge Can Help Pay for Health Reform

I’m Shannon Spillane. In this podcast we will discuss the need for health reform and one option to help pay for it. I’m joined by the Center’s Director of Federal Tax Policy, Chuck Marr.

1. Chuck, let’s start with the big picture. Why is reforming the health care system an urgent priority?

A: It’s very much an urgent priority because the system today really is on an unsustainable track. People risk losing their insurance because small companies are having a hard time providing that insurance because costs are going up so fast. People risk losing their insurance when they lose their job. And also, people risk losing coverage when they get sick. So for all those reasons I think that the system needs to be reformed.

2. So clearly it’s an urgent problem. Now why is it important that Congress pay for health reform?

A: Well, not only is the health care system on an unsustainable track, but our fiscal situation in the United States is on an unsustainable track as well. We are currently borrowing too much money and over the long term we need to pay for what services we provide. So it’s very important, if you’re going to have a health care bill, that it be financed and be paid for.

3. So, that means we need to come up with quite a bit of money. We’re here today to talk about one specific option that would help pay for health reform, known as the surtax or surcharge. The House of Representatives is considering health reform plans that include this surcharge. Can you explain what it is?

A: Sure, Shannon. The surtax would be a small tax that would be levied on high-income people. No surtax would be levied on any person’s income below $350,000. Even for high-income people, they would not pay any tax on that first amount. Then above $350,000, you’d see a 1 percent surtax applied. That rate would go up to 5 percent above a million dollars.

4. So would most Americans be affected?

A: Oh no, this would affect only a very small percentage of the people in the country. Over 98 percent of people would be completely unaffected.

5. What do you think of approach?

A: The surcharge is reasonable and well-targeted.

If you look back at what’s happened in recent decades, the incomes of people at the highest end of the income scale have increased at more than ten times the rate of average families, so it makes some sense to compensate for that by increasing taxes somewhat at the high end.

6. Some critics believe that small businesses would be hit hard by the surcharge. Is this true?

A: No. This has been really exaggerated, Shannon. Most small businesses, as most people know, are small. The proposal would have no impact whatsoever on more than 90 percent of small business in the country. And it’s important also to remember, Shannon, that right now, because of the stimulus package, that taxes of small businesses are being cut.

7. What about claims that raising taxes on high-income households weakens small-business job growth?

A: History shows, Shannon, that that’s just not the case. If you recall back during President Clinton’s time, there was this argument made the same way when his economic plan was going through. But small-business job growth during the Clinton years actually was twice as strong as it was during the Bush years when Congress had cut taxes. So this experience shows that there’s so many factors that affect job growth and taxes are just one and it’s really an exaggeration to say that it would have a negative effect on jobs.

8. So do small businesses have anything to gain from health reform?

A: Oh most definitely Shannon. The small business situation today is one of the primary reasons that we need health care reform. Because small businesses today have to pay a lot more for health insurance than large companies do because they don’t have that bargaining power. So they’re forced, if they want to cover their people, they have to pay more for it. So the idea for health care reform is to provide them access to more affordable health insurance for their employees.

Thank you for joining me, Chuck. Well this is definitely a complex issue. For our report on the surcharge, along with lots of other information about the health reform debate, visit our website: centeronbudget.org.