Taxing High-End Insurance Plans

Democrats are getting a lot of pressure from unions to eliminate the one provision that would corrode, or at least stop privileging, the inefficient employer-based health care system we have for the majority of this country:

As Democratic leaders prepare to bring healthcare legislation before the full House and Senate for votes this month, they soon must decide who will be taxed to pay for expanding coverage -- the wealthy or the insurance companies.

Legislation emerging from the House would slap a surtax on upper-income people. But many Democrats, especially in the Senate, fear the political fallout over voting to raise anyone's income taxes.

The most prominent Senate bill would impose a tax on insurance companies that provide expensive policies, sometimes dubbed "Cadillac" plans. But labor unions -- a powerful force within the Democratic Party -- bitterly oppose the idea, saying the tax would be passed on to workers in the form of higher premiums or shrunken benefits.

This would have been mitigated greatly by passing the Employee Free Choice Act first, because now it looks like Democrats are just dumping on labor unions. They need to pass EFCA very soon.

But let's be clear what the tax on insurers would do. It would only affect 10% of all insurance plans, and a lower percentage of those are union plans. And it's the only way to take in revenue for health care that extends beyond the cost of health inflation. I don't think the excise tax is entirely well-designed - it isn't adjusted by region based on cost-of-living, and without indexing it will quickly affect the average plan - but the House bill financing is not at all well-designed. It's just a budget-buster, with the effects past the budget window to hide them. That's a recipe for getting the bill dismantled in the future.

In other words, surpluses in the early years make up for deficits in the later years. But since time doesn’t actually stop when the CBO ten-year scoring window expires, what you’re left with is legislation that worsens the long-run fiscal outlook. That’s not really so awful since it basically just means that you’ll need to change the law sometime in the next ten years, and the law will definitely be changed in the next ten years anyway. But I’d say it’s definitely worse than the more robust form of deficit neutrality given by a bill that includes a revenue source which grows over time in line with costs.

To be clear, I think they should impose the surtax TOO, and use that money to expand the subsidies in the exchange. But the real goal here should be getting employers out of the business of providing health care, or at least into the regulated exchange. Taxing high-end plans does this, and does it in a mostly progressive way.

The War On Mitch Albom's Bank Account

Yesterday, I screwed up a pretty basic tax question when I misread that drug companies were getting a tax deduction for their ads instead of using ads as a business expense, like other companies, to offset profits. In times like these, I'm happy to not be Mitch Albom.

In explaining why it was OK to sock a new 5.4% tax on the highest earners in this country — to pay for health care reform — President Obama’s press secretary, Robert Gibbs, said this:

“The president believes that the richest 1% of this country has had a pretty good run of it for many, many, many years.”

Ah. So that’s it. The old “You’ve had it good enough for long enough” policy. That’s why a family earning a million dollars a year should now cough up $54,000 of that — in addition to all the other taxes it pays...

It is not that the rich should not pay fair taxes. They should.

But to justify a grossly overweighted tax by saying “You people have had it good long enough” is to engage in the worst and most destructive form of politics: class warfare.

Albom is engaging in math warfare. A family earning $1M a year would, under the surtax plan which is probably DOA, owe an extra $9,000. There's a thing called marginal tax rates, and so all your income isn't taxed at the same rate. Jonathan Schwarz has the full details.

But I actually want to hone in on Albom's "class warfare" comment. Obviously he gets the math completely wrong, but he thinks that we should not institute the kind of tax fairness that led to runaway growth in the 1950s and 1960s because we would be "engaging in class warfare." Well, we're already engaged in it, and the rich won. They captured government and shouted down the voices of the less fortunate. The truth of the matter is that higher marginal tax rates do not harm growth whatsoever. The rich have constructed a fantasy world where taxes on their income force them to cut jobs and end all business output. The facts show otherwise.

The effect of a range of variables other than the tax rates is tested by “progressive inclusion” to ensure robustness. When the average tax rate and the marginal tax rate are included separately in regressions the average tax rate is insignificant but the marginal tax is significant. A sample of the results is shown in Table 8 (t statistics in parentheses). Models II and III enter the tax variables separately. The lack of significance of the average tax rate is clear. Including both the average tax and the marginal tax is claimed to represent the effect of progressivity: holding the average tax rate constant while the marginal tax rate is increased represents an increase in progressivity. The results for Model VI show that when both tax variables are included the coefficient on marginal tax remains negative and significant but average tax is not significant. The results of Model III show that a 10 percentage point increase in the marginal tax rate reduces growth by 0.23 percentage points.

In addition, common sense dictates that rich people are far more concerned with their take-home pay than how many jobs they create for the poor and middle classes. A friend has a joke about his Republican brother insisting to him about the unfairness of the estate tax, and he replies, "I don't think rich people spend a lot of time thinking about the tax rates of my truck driver brother in downstate Illinois."

And needless to say, the author of two best-sellers and well-regarded columnist Mitch Albom falls into the category of the rich, not the Illinois truck driver. I'm sure he does find class warfare the "most destructive form of politics." At least to him.

The End Around The Blue Dogs

One of my co-guests on NPR today was Henry Cuellar, a Blue Dog. And 30 minutes goes fast with three guests, so I didn't get to confront him and his arguments as much as I wanted. For instance, McAllen, TX, is in his district, and that was the subject of the widely touted Atul Gawande piece in The New Yorker about disparities in health care delivery and effectiveness. But Cuellar pretty much harped on costs, costs, costs as an impediment to getting something done. I countered that cost control and expanding access, in many cases, are complementary. This makes the Blue Dog argument incoherent. They want to cut costs, but they are reluctant to enact the reforms that actually would do it. Not to mention the fact that they talk of fiscal responsibility while trying to carve out funding for rural health care, for example, which is the exact opposite of cost-cutting. And Steven Pearlstein picks up on this today.

The challenge for the Blue Dogs is that they want an America where everyone has insurance but are reluctant to force workers to buy it or employers to help pay for it.

They understand that achieving universal coverage will require subsidies for low-income workers and small businesses, but they insist that none of those changes add to the federal deficit or raise anyone's taxes.

They want to introduce more competition into the private insurance market, but not if it comes from a government-run insurance plan.

They complain constantly about the need to rein in runaway Medicare costs while at the same time demanding higher Medicare reimbursement rates for doctors and hospitals in rural areas.

You see what I mean about mushy centrism?

Yes. Yes I do.

The truth is that the Blue Dogs are slaves to entrenched power, serving the interests of powerful lobbies rather than the middle-income voters in their districts. Cutting subsidies to 300% of poverty level from 400% would make health care less affordable to working people - and it's only being considered in the House because Blue Dogs want to protect those making half a million a year from a surtax.

Henry Waxman refuses to let the Blue Dogs make chicken salad out of the House plan. He's talking about bypassing his committee entirely and bringing the bill already voted out of two other committees to the floor.

Chairman Henry Waxman (D-Calif.) says there is "no alternative" but to have healthcare legislation bypass his Energy and Commerce Committee if Blue Dog Democrats don't accept a deal worked out Friday.

Waxman is now playing a game of legislative chicken with the Blue Dogs. He's hoping the inclusion of a study on Medicare reimbursement rates in the healthcare overhaul will be enough to placate the centrist Democrats, who say the government program short-changes hospitals and physicians in their rural districts.

If that’s not, the seven Blue Dogs could join with the committee's Republicans to "eviscerate" healthcare reform, and that’s something Waxman will not tolerate.

"I won't allow them to hand over control of our committee to Republicans," Waxman told reporters.

Just like that, this morning, word leaked that Democrats in the House have agreed to include President Obama's "MedPAC on steroids" proposal to assemble a team of health care policy experts to make annual recommendations about Medicare, including reimbursement rates and delivery changes, that would face an up or down vote in Congress. This deal was the result of late night negotiations between Rahm Emanuel and the Blue Dogs. But they do not seem to have fully satisfied them.

At some point, I think you do have to pull the trigger. Matt Yglesias makes the moral case, that good legislation matters more than good process.

Something a lot of progressive legislative leaders seem to have forgotten until this Congress actually got under way is that historically congressional procedure is a challenge to be surmounted when you want big change to happen. It’s not actually a fixed feature of the landscape that people “have to” accommodate themselves to. For years you couldn’t get a decent Civil Rights bill because segregationists controlled the Judiciary Committee that had jurisdiction. This problem was “solved” by just deciding to bypass the Judiciary Committee. When you decide you want to get things done, you find a way to get them done. Even the allegedly sacrosanct filibuster rule has been changed repeatedly over the years. The law is the law and the constitution is the constitution, but the rules of congressional procedure are not law. They’re internally made rules, they’re subject to change, and the criteria for a good set of rules is that you want rules that produce good legislation and good governance.

If the internal rules are in place you should work to change them if they obstruct a change both the majority of Americans and the majority of the Congress clearly want.

...by the way, I agree with Pearlstein that Medicare might not be the best program to use for reforming the system:

The problem with using Medicare to serve as the leading edge of reform, however, is that it relies on a patient population, the elderly, that is least able and willing to embrace change. A better vehicle would be the new government-run insurance option that has become a political must-have for House leaders and President Obama. In return for dropping their opposition to such a "public option," the Blue Dogs could have insisted that it not be structured as a fee-for-service plan along the lines of Medicare but rather offer services through a network of high-quality, lower-cost hospitals and clinics that use teams of salaried doctors to provide coordinated care, along the lines of the Mayo and Cleveland clinics that Obama is always touting. In a competitive market, the success of such a government-run plan would force other insurers to follow suit.

...so the Blue Dogs claim that talks broke down today to resolve differences with Waxman, and I have to say he appears to be full of it. He says that Waxman took things off the table that, an hour before, Waxman was hailing in public as part of a breakthrough agreement? Doesn't pass the smell test. Someone's lying.

America Is Worth Paying For

The Wall Street Journal today takes a look at inequality and produces a startling statistic.

The nation's wealth gap is widening amid an uproar about lofty pay packages in the financial world.

Executives and other highly compensated employees now receive more than one-third of all pay in the U.S., according to a Wall Street Journal analysis of Social Security Administration data -- without counting billions of dollars more in pay that remains off federal radar screens that measure wages and salaries.

Highly paid employees received nearly $2.1 trillion of the $6.4 trillion in total U.S. pay in 2007, the latest figures available.

So much for trickle-down economics. Incidentally, the same people who tell you that the top 1% pay 30% of the taxes won't tell you that they also make 30% of the money, or that the after-tax income, adjusted for inflation, of the top 1% grew 256% over the past 25 years, compared to just 21% for those in the middle. So the rich are doing pretty well, and they can probably pony up so that nobody goes without health care in this country.

This brings us to a larger point about the success of the conservative movement in this country. Despite this extreme inequality, which causes asset bubbles, threatens programs like Social Security that cap payroll deductions at $100,000 a year and invariably destroys national economies, talk about progressive taxation - indeed, any taxation - is considered heresy.

One of the bigger, but more under-reported, sea changes in American politics is how any kind of tax increase -- whether in war or peace, good economic times or bad ones -- has become absolutely unacceptable. After all, Ronald Reagan raised taxes. So did every modern American president involved in war, until George W. Bush. But not anymore. Indeed, as one of us pointed out on Nightly News last night, only 29% (or 157) of the 535 and House members and senators serving in Congress were around the last time -- 1993! -- the federal government raised taxes, and that was on gasoline. Think about that for a moment: Congress hasn't really had a TOUGH vote in 16 years, if one defines a "TOUGH" vote as the government asking for a financial sacrifice from the American people. This is the political climate that President Obama faces in trying to pay for health reform. Republicans and some Democrats are opposed to a tax on the wealthy, and unions and Obama's political strategists are against taxing health benefits.

Congress raised the tobacco tax this year to pay for expansion of children's health care, but the point is basically true.

Barack Obama has not been a profile in courage on this front, stressing a tax cut for "95% of all Americans" and failing to act definitively to roll back the Bush tax cuts on the wealthy. Joe Biden made one statement during the campaign about how it's patriotic to pay taxes and he got rapped on the skull for it, and we never heard it again.

But look. If Democrats cannot stand up and say that America is worth paying for, that we have an overclass in this country that's had it very good for a long, long time, that rampant inequality threatens economic stability, and that the way to a sustainable future includes paying for the commons that we all share, we'll really never get anywhere. Republicans have made taxes more of a four-letter word than liberals, to the extent that they threw an entire round of tax "tea parties" despite Obama having cut taxes in the stimulus for practically everyone. Conservatives since the Reagan era have determined that America has an innate selfishness that they can exploit, to claim "the other guy" is getting your tax money, and everyone should resist it. As government has provided little of perceived tangible value since the invention of Medicare in the 1960s, they've been able to get away with this. But it's not a path that can hold.

It starts by making the argument that while nobody likes taxes, nobody builds their own roads, or schools, or police and fire departments, or health care infrastructure, and government needs to act as a provider of services. This is basic stuff that has been pushed aside in our national debate for far too long. In the final analysis, we have a selfish and cruel segment of society that has been allowed to rule the roost for decades, promising their constituents endless services and endlessly low taxes forever. Democrats have the choice of accepting that and permanently nibbling around the edges the few times they get into power, or making the argument that we can have a better society.

The Magic Calculator

David Brooks has a new calculator where he adds state and local taxes to income taxes and comes up with a super duper number to show the burden on the henpecked rich:

BROOKS: You know, they made some progress on the Hill, they got a House bill out, they got a Senate bill moving forward. They’re scaring the dickens out of the moderates in their own party, let alone the Republicans. They’re scaring the dickens out of them because the House bill calls for raising the top tax rate to 52 or in some cities, 57%. That’s higher than in France, Spain, Italy…

Magically, Brooks neglects that other little line item on the tax form - the part with all the deductions. In many states, you can deduct your federal taxes on your state taxes. And then there's the deductions for mortgage interest, and charity, and every phone call you have with someone in your business, and every dinner, and all of the other hundreds if not thousands of deductions and credits and givebacks available to those in the top tax rate, not to mention tax shelters and numbered Swiss bank accounts and the like.

There's only one tax rate that matters, and that's the effective tax rate, measuring the amount of money individuals actually pay to the federal government. The effective tax rate for the top 1% was down to 31.2% in 2006, down measurably from the previous year and at an almost historical low.

Now, maybe some of those Democrats in wealthy districts could get out their calculators and explain this to their constituents, but I think they all have David Brooks' calculator model.

Misdirected Activism

Am I the only one who didn't really see a line in the sand from the President in yesterday's health care YouTube address?

That’s why any plan I sign must include an insurance exchange: a one-stop shopping marketplace where you can compare the benefits, cost and track records of a variety of plans – including a public option to increase competition and keep insurance companies honest – and choose what’s best for your family. And that’s why we’ll put an end to the worst practices of the insurance industry: no more yearly caps or lifetime caps; no more denying people care because of pre-existing conditions; and no more dropping people from a plan when they get too sick. No longer will you be without health insurance, even if you lose your job or change jobs.

The emphasis of the must is on the insurance exchange, which is actually a very important policy to break regional monopolies in the insurance market. The public option is wedged in there, but mostly Obama demands an insurance exchange so that individuals and small businesses have the ability to choose from a wide variety of plans.

But what this shows to me is that the public option is yesterday's debate. I think we'll get it, if we get a bill. But it's not holding up the process any more. It's too popular to kill the bill over. There are other elements that can sink the bill, most of them to do with cost. The DNC push against recalcitrant House and Senate Democrats just references some horror stories from citizens and states "it's time" for health care reform. No policy is forwarded, certainly not the public option.

The groups pushing back against reform aren't simply opposed to the public option, they're opposed to reform in general. And they see the cost controls and how to pay for the bill as the best way to attack it. Unfortunately, not a lot of people on the progressive side are defending wealth surtaxes or increasing the authority of MedPAC, for example.

Still Masters Of The Universe

What we're seeing from the big bank earnings reports is that the government reacted to a situation where the financial industry titans were too big to fail, and facilitated theconsolidation of them so that they grew even bigger. Goldman Sachs and JP Morgan Chase are the biggest of the lot, having seen their competition either eliminated or weakened.

“One theme here is that Goldman Sachs and JPMorgan really have emerged as the winners, as the last of the survivors,” said Robert Reich, a professor at the University of California, Berkeley, who was secretary of labor in the Clinton administration.

Both banks now stand astride post-bailout Wall Street, having benefited from billions of dollars in taxpayer support and cheap government financing to climb over banks that continue to struggle. They are capitalizing on the turmoil in financial markets and their rivals’ weakness to pull in billions in trading profits.

Even Bank of America and Citigroup posted big profits in the last quarter, although the elimination of mark-to-market accounting plays a major role in hiding the true weakness of a lot of these banks. The imminent failure of more community banks and larger firms like CIT present opportunities for JP Morgan and Goldman Sachs as well.

Paul Krugman gets shrill on Goldman Sachs today, and he makes the larger point that we have only made Wall Street more dangerous to the overall economy through no-strings bailouts and failing to rein in the excess.

Over the past generation — ever since the banking deregulation of the Reagan years — the U.S. economy has been “financialized.” The business of moving money around, of slicing, dicing and repackaging financial claims, has soared in importance compared with the actual production of useful stuff. The sector officially labeled “securities, commodity contracts and investments” has grown especially fast, from only 0.3 percent of G.D.P. in the late 1970s to 1.7 percent of G.D.P. in 2007.

Such growth would be fine if financialization really delivered on its promises — if financial firms made money by directing capital to its most productive uses, by developing innovative ways to spread and reduce risk. But can anyone, at this point, make those claims with a straight face? Financial firms, we now know, directed vast quantities of capital into the construction of unsellable houses and empty shopping malls. They increased risk rather than reducing it, and concentrated risk rather than spreading it. In effect, the industry was selling dangerous patent medicine to gullible consumers [...]

The huge bonuses Goldman will soon hand out show that financial-industry highfliers are still operating under a system of heads they win, tails other people lose. If you’re a banker, and you generate big short-term profits, you get lavishly rewarded — and you don’t have to give the money back if and when those profits turn out to have been a mirage. You have every reason, then, to steer investors into taking risks they don’t understand.

And the events of the past year have skewed those incentives even more, by putting taxpayers as well as investors on the hook if things go wrong.

Basically, Krugman hinges the success of the bailout on meaningful financial regulation to keep Wall Street from making the same gambles. I'm not hopeful about that. But what I am hopeful about is the recognition, from across the political spectrum, that the bailout has produced perverse incentives that need to be reversed in whatever way possible.

The (Wall Street) Journal's take -- "We like profits as much as the next capitalist. But when those profits are supported by government guarantees or insured deposits, taxpayers have a special interest in how the companies conduct their business" -- is actually more in keeping with that of Robert Reich, who says that "Goldman's resurgence should send shivers down the backs of every hardworking American who has lost a large chunk of retirement savings in this economic debacle, as well as the millions who have lost their jobs.... Goldman's high-risk business model hasn't changed one bit from what it was before the implosion of Wall Street." [...]

There is much in the Wall Street Journal that I don't agree with but, when it comes to the failure of the administration to address and fundamentally reform what Kessler calls "the structural problems that got us into trouble in the first place," we are of the same mind. There is no daylight between a progressive position focused on the paramount need to get the real economy going and one based purely on what makes free markets work.

The editorial goes so far as to suggest imposing a tax (yes, the Wall Street Journal is proposing a tax!), an FDIC-style bailout tax to be precise, "for those in the too-big-to-fail camp."

Even Reagan-era economist Bruce Bartlett is arguing for higher taxes, albeit regressive ones. I actually think the proper context is in terms of the health care debate. Goldman Sachs and other Wall Street firms took advantage of a financial crisis to redistribute wealth upwards. To pay for health care for the indigent, we should unwind that redistribution, perhaps with Charlie Rangel's surtax that adds brackets at the high end. It is impossible for conservatives to argue against redistribution of wealth with a straight face, given the example of Goldman Sachs.

...Simon Johnson:

We are looking at a concentration of political power in the US banking system that we haven’t seen since the 1830s: Shades of Andrew Jackson vs. the Second Bank of the United States. We put up with a lot from our banking elite in this country, but historically we draw the line at financial power so concentrated it can confront the power of the President.

The logic for reform and for breaking up the big banks begins to build. Bank of America’s fall was, in some senses, a fortunate accident for Goldman and JP Morgan. But it has also given them an excessive and unsustainable degree of political power.

Of course, you also have to ask: Who can break that power, when, and how?

...This is a dangerous time, politically. 80% of the public believe that Wall Street benefited from the bailouts, and not taxpayers. That's an unsurprising result. The question is how the public reacts. We could see a right-wing populism take shape if the teabaggers ever get their act together, or a New Deal coalition reformed. I talked to a writer last night who said he felt like he was living through history, as the Depression-era battle lines are being drawn. We don't know who will win yet, but it doesn't look good from where I sit.

Wanted: More Reform In This Reform

For liberals, the public option has become a line in the sand. Given that the public option is carefully circumscribed and not open to everyone who may want to choose it, I find that more curious than ever.

President Obama and leading Democrats have stressed that people who like their employer-sponsored insurance would be able to keep it, under a health care overhaul. But they haven't emphasized the flip side: That people who don't like their coverage might have to keep it.

Under the main health bills being debated in Congress, many people with job-based insurance could find it difficult to impossible to switch to health plans on a new insurance exchange, even if the plans there were cheaper or offered better coverage. The restrictions extend to any government-run plan, which would be offered on the exchange [...]

Democratic lawmakers and administration officials say the restrictions are critical to maintaining a strong employer-based insurance system, which covers 158 million Americans.

But critics argue that the rules run counter to suggestions from health care reform advocates that an overhaul could provide people with a broader choice of insurance options. The rules, they say, could be especially unfair to some lower-income workers who are enrolled in costly job-based insurance. Also, they argue, the restrictions would hurt the proposed public plan by limiting enrollment.

Why are the Democrats putting up these firewalls? For years now, they have professed to have learned the lessons of 1994 by stating that "if you like what you have, you can keep it." That's been called the "beauty" of the current plan by people like Howard Dean. But what it means on a practical level is that the employer-based system, with all its inefficiency, must be sustained, in this case through forcing workers to accept their employer-based coverage. There are other reasons, too, which Ezra Klein lays out.

The political reason is that people like what they have, or are at least scared of what they don't know, and are thus skeptical of any health-care reform plan that would change their current arrangements. One of the goals of health-care reform, in fact, is to maximize employer-based coverage, which will be accomplished through the employer mandate. If employers could simply move over to the exchange -- which would probably be quite a bit cheaper for them -- then a lot of people will find their current insurance changing, and reformers don't want that.

The economic reason is that the exchange is where the subsidies live. If you make $30,000 but you work full-time for The Washington Post, The Washington Post pays for the bulk of your health-care coverage. If you were moved over to the exchange, you'd be eligible for pretty significant subsidies. That would make health-care reform costlier to the government, which would in turn make it tougher to pass. Another way of putting this is that the fewer people on the exchange and using subsidies, the cheaper health-care reform will be.

And the policy reason is that if the exchange is open to all employers in the first year, it's likely that the employers having trouble affording health-care insurance -- that is to say, the employers with sicker and older workforces -- will quickly buy in, while the young, cheaper employers won't. That could leave the exchange with a bad risk pool and thus high costs.

It's important to note that Ron Wyden is trying to change this. He's trying to allow individuals who get coverage through employers the choice to buy coverage through the insurance exchange. It's technical, but something that progressives ought to get behind.

But this issue with the insurance exchange firewalls is symptomatic of a lot of the moving parts of the health care debate. Reformers want to cut the internal costs from the current system, and are making deals with providers to do so. But in so doing they're giving up even bigger potential cost savings.

If only that were true. Far from being "game-changers," those agreements are the same old Washington game of bribes, backroom deals, profiteering and protectionism -- and a harbinger of what health care will look like if the president’s reforms succeed.

In June, the pharmaceutical lobby PhRMA agreed to give 50 percent discounts to seniors in Medicare's "doughnut hole," where enrollees now pay 100 percent of their drug costs. President Obama hailed the agreement as a "significant breakthrough," while PhRMA spun it as their $80 billion contribution toward health care reform.

Yet the PhRMA agreement would not save taxpayers $80 billion. It would cost them $80 billion, and then some.

Under the agreement, the full price of each drug would continue to count toward seniors' catastrophic deductible. As a result, even more seniors would exceed that deductible, after which taxpayers would pay 95 percent of their drug costs. Obama also agreed to oppose stricter price controls for government purchases. PhRMA members agreed to cut their prices for seniors only because Obama agreed that taxpayers would buy more drugs at higher prices.

I know, it's from Cato, but the guy's not totally wrong. For instance, in the Senate HELP Committee markup, biologic drugs were given 12 years of patent protection before competition from generics kicks in. This was a defeat for the Obama Administration, but even the victories have strings attached.

Even the revenue mechanism in the House, a surtax for the wealthy, is the result of a political concession, albeit one that Republicans walked into and ought to own (Republicans demonized sensible taxes for so many years that wealth taxes are really all that's left). The truth is that we have this fundamental paradox in the health care debate.

And that's pretty much where we are now. Democrats are making a lot of bad policy compromises because doing so is good politics. They're trying to fund the bill in the way pollsters would advise rather than policy wonks would choose. They're leaving the employer-based system alone. They're letting everyone keep what they have, even though what everyone has is expensive and inefficient, and is in fact the reason we need health-care reform.

Is it worth being disappointed about that? Sure. But legislation cannot be understood in a vacuum. The place to change the tax argument isn't in final days of health-care reform. It's in the intervening years when Republicans are attacking the very idea of taxation. Any given piece of legislation is only as good as the political culture that's produced it. Right now, our political culture isn't that good. The question is whether legislators are getting the best plausible outcomes out of a badly compromised process.

As Ezra says, we have a terrible political culture, and you're starting to see the results. If 30 million Americans get health insurance and you don't add a penny to the debt, you make that deal. And cementing something like a public insurance option into policy, given that it can only expand, which is an easier lift politically, is a good bargain as well. But the counter-intuitive compromises are a bit hard to take.

The Blue Dogs Go To Work

Mike Ross, apparently the point person for the Blue Dogs on health care, says he has the votes to defeat the bill in the Blue Dog-heavy Energy and Commerce committee, if he doesn't get certain changes.

A leader of the conservative "Blue Dog" Democrats told CNN Wednesday he and other group members may vote to block House Democrats' health care bill from passing a key committee if they don't get some of the changes they want.

"We remain opposed to the current bill, and we continue to meet several times a day to decide how we're going to proceed and what amendments we will be offering as Blue Dogs on the committees," said Rep. Mike Ross, D-Arkansas.

Ross said the bill unveiled Tuesday by House Democratic leaders did not address concerns he and other conservative Democrats outlined in a letter late last week to Speaker Nancy Pelosi.

The conservative Democrats don't believe the legislation contains sufficient reforms to control costs in the health care system and believe additional savings can be found. Their letter to leaders raised concerns about new mandates on small businesses. Blue Dogs also say the bill fails to fix the inequities in the current system for health care costs for rural doctors and hospitals.

Of course, this is inconsistent. You cannot control costs in the health care system while demanding higher payments to rural doctors and hospitals. I wonder if anyone has pointed that out. The same with the mandates on small businesses. House Democratic leaders actually exempted small businesses from the employer mandate with a higher amount of payroll than what was initially in their discussion draft - up to $250,000. But the Blue Dogs want larger small businesses to be exempted as well. That means less money in the system, because businesses would pay 8% of payroll for each employee if they don't provide health care. So the Blue Dogs want both cost controls, less cost controls, and more targeted health spending. It's not supposed to make any sense.

In addition, freshman Jared Polis is trying to derail the surtax on the wealthy used as a mechanism in the House bill to pay for it.

And Rep. Jared Polis (Colo.), meanwhile, was circulating a draft letter among freshman Democrats to Pelosi opposing the $544 billion income tax surcharge on the wealthy, arguing it would hit many small businesses and manufacturers.

“Especially in a recession, we need to make sure not to kill the goose that will lay the golden eggs of our recovery,” Polis wrote. “By concentrating the cost of health care reform in one area, and in one that will negatively affect small businesses, we are concerned that this will discourage entrepreneurial activity and job growth.”

That objection was gaining steam Wednesday among freshmen and others from wealthy suburban districts, as business groups stepped up their attacks.

Actually, what the surtax does is add extra brackets, which should have been done long ago and should actually go further.

The lack of an instinct for self-preservation strikes me. If health care doesn't pass, the primary part of the President's agenda, the 2010 midterms could get ugly. And the first people to pay the price would be Blue Dogs in conservative districts and freshmen, the same people grousing at the provisions of the bill. Some of that is legislative sausage as they look to get paid off - but the cost of not having a bill for these members of Congress is great. Henry Waxman puts it best:

Energy and Commerce Chairman Henry Waxman (D-Calif.) said he will meet with Ross, along with others, and plans to amend the bill again tomorrow himself.

But he urged them to work to pass the bill instead of tearing it down.

“Can a bunch of Members bring a bill down? Yeah. Then what? ... Democrats have a lot at stake in this legislation, the president has made this his No. 1 priority,” he said. “We’re going to have to come together.”

(notice, too, that the public option was not part of any of these concerns. The blogosphere is missing the mark here)

...Here's Ben Nelson also being an idiot and attributing the idiocy to his constituents.

Tri-Committee Bill Released

I should mention that the Tri-Committee health care reform bill from the House has been released, and rather than bend to the dictates of marginalized Blue Dogs who value their relationships with the health care industry over their constituents, they created a pretty darn good bill. It's not perfect, of course, but it represents a far better bill on the left flank than, say, the Waxman-Markey bill did.

I'll post the brief on what the reform bill does for consumers:

LOWER COSTS
• No more co-pays or deductibles for preventive care
• No more rate increases for pre-existing conditions, gender, or occupation
• An annual cap on your out-of-pocket expenses
• Group rates of a national pool if you buy your own plan
• Guaranteed, affordable oral, hearing, and vision care for your kids

GREATER CHOICE
• Keep your doctor, and your current plan, if you like them
• More choice, with a high quality public health insurance option competing with private insurers

HIGHER QUALITY
• You and your doctors make health care decisions — not insurance companies
• More family doctors and nurses will enter the workforce, helping guarantee access
• Mental health care must be covered

STABILITY & PEACE OF MIND
• No more coverage denials for pre-existing conditions
• No more lifetime limits on how much insurance companies will pay
• No reason to ever make a job or life decision again based on health care coverage

The "national pool" refers to the insurance exchange, which is a hard concept to put into bullet points, but this is a pretty good list of how the average Americans would benefit from this plan.

As to the specifics, here's Ezra Klein, Scarecrow, Mcjoan and Jon Cohn. You'll notice a consensus. 97% of the population would get covered in 10 years. The subsidies are 400% of poverty and Medicaid gets expanded to 133% of poverty - both more generous subsidies than the Senate bills. Insurers are regulated against denying coverage for pre-existing condition or rescission, and the benefits floor is pretty decent. There are caps on out-of-pocket expenses, and efforts at controlling costs. It includes an individual mandate and an employer mandate that gets exempted for certain-sized small businesses. About the worst thing you can say about the bill is that some of the good stuff doesn't happen fast enough (to keep the size of the cost down):

I do have one, not minor concern: It will be a while before people see the best stuff. Most of the major elements--the insurance exchange, the subsidies, the insurance regulations, the public plan--won't come online until 2013 or later. This is, I believe, also true of counterpart bills in the Senate.

There's a sound policy rationale for going slow; it takes a lot of work to set up exchanges, regulations, and the like. But four years is a long time. And I suspect money has a lot to do with the pace. Slower implementation makes it possible to keep the price tag to around $1 trillion.

On the bright side, some provisions--filling in the Medicare drug donut hole, bolsteirng the primary care workforce, among others--would start in the next two years.

The cost of the bill, scored by the CBO at around $1 trillion dollars over 10 years, gets paid with $500 billion in internal cost savings and around $500 billion in new revenues, mostly with a surtax on the wealthy. I prefer other methods, but let's get real about this:

The details haven't been released yet, but most (if not all) of the families that fall under Rangel's tax plan will also be in this 1% range.

These are families that paid a lower rate in 2006 (the last date of available data) than they did 15 years ago. That's not an argument for upping the taxes, of course. But it puts it in perspective. (Confession: If you go back to the Reagan years, the top effective rate is lower. But the current rate is still below the historical average.)

News reports have anticipated Rangel proposing a 1-3% surtax. Even a 3% increase across the board will leave an effective rate lower than it was in 1995.

The President approves of the general approach of the House bill, and the Education and Labor Committee will start markup this week. The bill text is here and a summary is here.

We're off and running.

...more on the surtax from Tim Foley.

Time To Stand Up To Powerful Interests

The other big news today is that we'll see a House health care bill out of the Tri-Committee process. It will include a public option that bargains with near-Medicare rates for the first three years, and it's partially financed by progressive taxes on the wealthy. There seems to be a lot of discussion about the timetable of the legislation, which I think really should be a secondary issue. Missing deadlines is as fundamental to the Congress as bloviating speeches. We don't need this fast, we need this right.

As to how to get there, as Mike Lux says we have an easy choice. We can compromise with a minority who do not believe Medicare and Medicaid should have ever existed and give in to those who warn about the cost of providing health insurance to everyone, while positioning themselves as defenders of health care providers to reap their share of funds. Or we can ignore these dissemblers and design a system that works for people instead of industries that value profit. The fight will be long and tough, and details matter.

On a broad array of contentious issues – from government’s role in providing insurance to the size of subsidies for lower-income Americans – the liberals who largely control the agenda in the House are holding fast to their principles. The legislation expected to be formally unveiled, perhaps as soon as today, will reflect their vision of how to insure nearly all Americans and how to pay for it – including a proposal to tax the wealthy that was announced Friday.

But the Democratic liberals face stiff challenges from moderates and conservatives in their own party on the price tag of legislation. Growing pressure to lower the cost to $1 trillion or less over ten years poses a threat to their foremost goal of guaranteeing Americans comprehensive, affordable coverage.

Peter Harbage, a fellow at the Center for American Progress, a liberal think tank, says the impact of legislation will vary sharply depending on how well it’s financed. “In terms of uninsured families, will they end up paying out of pocket between 5 percent and 8 percent of their income for health insurance, or is it going to be 17 percent and 20 percent of their income?” he asks. “If it’s 20 percent, that’s better than what some families have today, but it’s difficult to see how progressives are going to see that as a victory.”

On these and other issues, that choice I described earlier keeps coming up. And in the end, people will know, in their monthly statements and in the quality of their care, whether Democrats capitulated or not. As Lux says, the choice is clear.

The internal debate on health care strategy for Democrats can be boiled down to this: do we choose the approach whose specifics are more popular with the public and will almost certainly work better in practice once it gets passed, or do we want to go with something that has some bipartisan support and may avoid an all out war with the insurance industry? [...]

The first thing to understand in all this is the consequences for the Democrats for the next generation and probably longer if they pass some convoluted, complicated, unworkable compromise that doesn't change the abusive patterns in the insurance and pharmaceutical industries and doesn't begin to control health care costs. If they pass a compromise that doesn't meet regular people's needs, folks will figure it out very quickly, as most people deal with the health care system all the time. If the Democrats twist up this bill to make insurance companies and their Republican allies happy, it is end of story for this generation of Democrats -- our party will not recover from screwing up health care.

The second thing to understand is that wealthy, powerful elements of the health care industry, along with the entire right-wing message machine, will oppose any health care reform bill. Democrats trying to avoid a fight should just get over it: they will get one no matter what.

Here's the other thing: having a clear, clean fight -- Obama and the Democrats take on the insurance companies -- is an easier message to win with than the mushy "we're all in this together, we're all partners in solving this problem" thing Obama has been doing so far. Having enemies helps define this fight in Obama's favor, especially when the enemies are as unpopular as the insurance companies.

It's amazing that, with a Democratic majority in both houses of Congress, indeed a super-majority in the Senate, and with a Democrat in the White House, getting the most popular and effective policy can be seen as a triumph of the little guy. But that's where we're at. And we're ready to keep fighting.

...the release of the Tri-Committee bill may get delayed a day.

Soaking The Rich Or Adding Brackets?

I still think that reducing the charitable donation deduction makes more sense than adding a surtax for the rich in paying for health care reform. Both hit similar groups of people but the talking points are much easier with capping the charitable deduction - you mean people don't give out of the goodness of their hearts, but to get a tax break? It's just an easier sell.

But as the House appears to be moving toward a surtax, let's be clear about it:

The proposal calls for a surtax on individuals earning at least $280,000 in adjusted gross income and couples earning more than $350,000, said the chairman, Representative Charles B. Rangel of New York.

It would generate about $550 billion over 10 years to pay about half the cost of the legislation, Mr. Rangel said. As the proposal envisions it, the rest of the cost would be covered by lower spending on Medicare, the government health plan for the elderly, and other health care savings [...]

But emerging from daylong committee negotiations Friday, Mr. Rangel said the income surtax would take effect in 2011 and begin at 1 percent of adjusted gross income — earnings before deductions like those for mortgage interest and charitable contributions — and would apply to individuals earning more than $280,000 and couples earning more than $350,000.

The surtax would be increased for individuals earning more than $400,000 and couples earning more than $500,000, and step up again for individuals earning over $800,000 and couples earning above $1 million. The precise extent of these increases has not been announced.

This looks like adding tax brackets, in effect. And we need to add tax brackets, especially at the higher end - I would like to see tax brackets at $3 million and $5 million as well. If you really want to stop the bonus culture on Wall Street, you tax income at the highest levels with brackets that discourage those lump sum payments over a certain level. A surtax like this will seem like a micropayment to people at this level, experiencing the lowest marginal tax rate in the history of America currently.

Like I said, I prefer the charitable deduction cap, but if this leads to emphasizing the importance of higher marginal tax brackets, I can live with it. And yes, this is true:

With this small tax bump for the relatively wealthy being proposed, look forward to the following bad press coverage:

Confusion between total and marginal tax rates.

Confusion between small business revenue and small business profits.

Stories about how in some places $350,000 isn't all that wealth.

...by the way, I'll sign up for Club Wagner, too.

With this post, we announce the formation of Club Wagner. It’s a (fictional) organization of people willing to acknowledge a basic economic reality: Taxes in the United States must rise.

At their current levels, taxes are too low to cover the kind of government that Americans have made clear they want — a government that includes Medicare, Social Security, a strong military and numerous other programs.

Our club is named after Adolf Wagner, a 19th-century German economist who predicted that taxes would rise as societies became wealthier. “As people grew more affluent,” as the writer Matt Miller has explained Wagner’s Law, “they’d want more of what only government could provide — a strong military, public order, good schools and assorted welfare benefits, services that private citizens would have trouble arranging for on their own.”