Click here for a guide to following the health care reform story online.
Why aren’t Republicans livid about Obamacare’s proposed Medicare tax increase?
As someone who believes in progressive taxation and would like to see Obamacare become law, I hesitate to bring this up. But I’m a long-standing observer of Homo Republicanus, and anthropological curiosity is getting the better of me. Obamacare would raise taxes on rich people. Why isn’t the GOP making a bigger stink?
The tax I refer to was selected by Senate Majority Leader Harry Reid as a less-controversial alternative to the House’s proposed 5.4 percent surcharge on family incomes above $1 million, which would raise an estimated $460 billion over 10 years. Instead Reid chose to increase the employee portion of the Medicare payroll tax, currently set at a flat rate of 1.45 percent of income, to 1.95 percent for family incomes above $250,000. Later Reid bumped that up to 2.35 percent to make up lost revenue as he bargained away much of the bill’s proposed tax on high-cost “Cadillac” health insurance policies. Later still, President Obama added a 2.9 percent surcharge on investment income for family incomes above $250,000, as he bargained away still more of the Cadillac tax. Reid’s proposal and Obama’s proposal combined would raise $184 billion over 10 years.
The White House describes Obama’s new surtax on investments as an extension of the current Medicare tax. The 2.9 percent figure represents the current employee share (1.45 percent) plus the current employer share (also 1.45 percent). Since the employer pays out of what would otherwise be wages, employees today really pay, practically speaking, a Medicare payroll tax of 2.9 percent. This rationale allows the new tax on investment income (2.9 percent) to exceed the new tax on wages (2.35 percent). That’s fair and just, since even within the rarefied cohort of people earning more than $250,000, the folks whose income comes disproportionately from capital tend to be wealthier than the folks whose income comes disproportionately from labor. According to an analysis by the labor-backed Citizens for Tax Justice, the Medicare payroll tax increase would fall almost entirely on the richest 5 percent, and 84 percent of it would be paid by the richest 1 percent. This is the sort of thing that drove conservatives batty in the past.
It doesn’t seem to be driving them batty now. Would you like to know how many times Republicans brought it up at the bipartisan health care meeting on Feb. 25? Twice, both times in passing. Senate Minority Whip John Kyl, R-Ariz., mentioned it while arguing that Obamacare would hurt small business. (“One way you don’t help small businesses is by raising the payroll—the Medicare payroll tax on them, which is what this legislation does.”) And House Minority Whip Eric Cantor, R-Va., complained vaguely, “Now, you suggest investment income should be taxed.” Three days earlier, after the president unveiled his proposal, a press release issued by House Minority Leader John Boehner, R-Ohio, griped that it would “raise taxes” but never mentioned the Medicare payroll tax. Neither did a press release by Senate Minority Leader Mitch McConnell, R-Ky. “Broadened Medicare Tax Likely To Spur Backlash,” predicted the Hill’s “Blog Briefing Room” on Feb. 22. To be sure, the payroll tax has been mentioned here and there in GOP position papers. But Republicans have been far likelier to complain that the bill would use taxpayer money to fund abortions (it wouldn’t), that the Democrats’ plan to pass the bill using the budget reconciliation process is unusual (it isn’t), and that Obamacare amounts to a government takeover of the health care industry (it doesn’t).
Where is the Republican Party I knew in 2003? Back then, high-ranking economic officials in the Bush administration forthrightly challenged the very idea of income progressivity, arguing that the real problem with taxes was that the rich paid too much and the poor too little. The chief proponent of this view in Congress was Rep. (now Sen.) Jim DeMint, R-S.C., who more recently predicted that health reform would be Obama’s “Waterloo.” But in a March 3 press release (“Takeover of Health Care Can’t Be Fixed, Must Be Scrapped”), DeMint made no mention of the Medicare payroll tax increase for high-income families. Some Wellington! During the Dubya era, any suggestion to tax capital at a higher rate than labor would have struck Republicans as topsy-turvy. “Rather than tax investment income and labor income on an equal basis,” Jonathan Chait observed in his 2007 book The Big Con, “Bush has tried to wipe out all taxes on capital by eliminating the estate tax and slashing rates on capital gains and dividends.” Such fanaticism appears now in retreat. Why?
Maybe the recession has made solicitude on the part of the rich less plausible to the electorate. Maybe squawking too loudly about a tax increase affecting people earning more than $250,000 a year would be hard to square with Republicans’ populist cavils about Medicare cuts. Maybe Republicans figure their wealthier constituents will flee the tax by declaring themselves to be S corporations, a payroll-tax dodge made famous in 2004 by John Edwards. (For this reason, and because it raises more revenue, I prefer the House’s millionaire surtax.) For whatever reason, the proposed Medicare payroll tax increase has been mostly a nonissue for Republicans. Dare we call that progress?
Update, March 10: “Noah is confusing rhetoric with commitment,” Chait says. “[T]he point of the rhetoric isn’t to identify the parts of the bill Republicans dislike the most. The point is to kill the bill, or exert the highest possible political toll on Democrats for passing it.” OK, that works. Chait’s blog post on this question is worth reading in full.
E-mail Timothy Noah at email@example.com.