It's the most blatant form of Robin Hood economics ever proposed. The universal health care bill reported by the House yesterday pays for the health insurance of the 20 percent of Americans who need help affording it with a surtax on the richest 1 percent.
I don't recall the last time Congress came up with such a direct redistribution. Occasionally Congress closes a few tax loopholes at the top and offers a refundable tax credit to workers at the bottom, or it creates a poor people's program like Medicaid, paid for out of general revenues from a progressive income tax. But to say out loud, as the House has just done, that those in our society who can most readily afford it should pay for the health insurance of those who cannot is, well, audacious.
There's another word for it: fair. According to the most recent data (for 2007), the best-off 1 percent of American households take home about 20 percent of total income -- the highest percentage since 1928. Yes, I know: Critics will charge that these are the very people who invest, innovate, and hire, and thereby keep the economy going. So raising their taxes will burden the economy and thereby hurt everyone, including those who are supposed to be helped.
But there's no reason to suppose that taking a tiny sliver of the incomes of the top 1 percent will reduce all that much of their ardor to invest, innovate, and hire in the future. Yet if this tiny sliver means affordable health care for a far larger number of Americans, who will be able to get regular checkups and thereby stay healthy and productive, the positive effect on the American economy is likely to be far greater.
Don't believe critics who say the surtax will harm small business. According to the Center for Tax Justice, it would hit only five percent of small business owners -- realistically defined as taxpayers for whom small business income makes up at least half of their adjusted gross income (from schedule C businesses, partnerships, family farms, and Subchapter S corporations).
Besides, only the profits of a small business would be taxed. The owner of a small business deducts money paid to employees as compensation, as well as operating costs. So, for example, a couple whose income comes entirely from a small business would have to earn more than $350,000 in business profits -- after paying all their expenses, including salaries -- before the surcharge would affect them at all. And if they earned more, the surcharge wouldn't reduce their incentive to hire more employees because they pay employees with pre-tax income. And not even purchases of equipment to expand business operations would be affected because most small business owners can write off up to $250,000 of the costs of such equipment immediately.
A surtax is easy to administer. And the whole idea is easy to understand. Tax the wealthy to keep everyone healthy. Not even a bad bumper sticker.
This article first appeared on Robert Reich’s Blog. Republished with permission