Tuesday, January 28, 2014

Impact of the Employer Mandate’s Definition of Full-time Employee on Jobs and Opportunities

Comments for the Record
U.S. House of Representatives
Committee on Ways and Means
Hearing on the Impact of the Employer Mandate’s Definition of
Full-time Employee on Jobs and Opportunities
1100 Longworth House Office Building
January 28, 10:00 AM
by Michael G. Bindner
The Center for Fiscal Equity


Chairman Camp and Ranking Member Levin, thank you for the opportunity to submit my comments on this topic.  

I am not submitting comments based on the impact to the Center for Fiscal Equity, as the Center has only one staff member(me) and, barring an avalanche of contributions resulting from our many comments over the last few years, that I am neither paid or receive insurance.  This does not mean, however, that there is nothing I can add on this issue.

My first real job (not counting one in the school Cafeteria) did not offer health insurance to most of its staff – although I suspect that line cooks and managers might have been provided with something.  This did not bother me much at the time, as I was insured as a minor child under my father’s policy at Rockwell (thanks to the government for funding that insurance in its entirety through either the benefit or his payroll.  I was continually covered all through college (and work study jobs were also uninsured) and graduate school (fellowships provided no insurance and all undergraduate and graduate students were required to provide proof of insurance or purchase it through the university).

My first federal job provided access to the FEHBP, which I used.  All of my beltway bandit jobs since them provided insurance, as well as my job with the DC Government, although with an employee contribution required.  That won’t change for either type of employer because such jobs require a level of education and skill AND because the insurance is backed by the full faith and credit of the United States.

Between good government and quasi-government jobs are assignments with a staffing company.  At first, if I were paying for insurance through COBRA, the staffing firm would provide a partial reimbursement - $50 if memory serves.  It later began providing insurance, which I took in two instances.  In the first, it paid for my pharmacy costs (with co-pays in a reasonable.  It also provided proof of insurance to avoid pre-existing condition requirements the first time I went on my wife’s policy when she became employed. 
The second time the insurance did not go very far because I had more than one .ER visit.  It covered the first one but because of caps it did not cover two additional visits and an admit for a cardio workup. Rather than paying for something I was not getting any additional use of, I dropped the coverage.  This should be a caution to all insurance firms – and to the Congress when it attempts to amend the Affordable Care Act.  On marginal insurance policies, caps within a year only lead people to stop making payments.  I suspect that a policy this bad is no longer offered and that this is a good thing.

My wife and daughter currently have coverage but adding me was too expense, even without a pre-existing condition clause.  Sadly, when she gets a raise later this year, there is no trigger to allow her to adjust her insurance until the next open season – which leaves me to either the Exchanges (which is uncertain due to a subsidy calculation that includes her income) or remaining uninsured.

I am now employed; however it is in a marginal film crew job at a well known cinema.  In this job the managers and supervisors get insurance while the film crew does not.  There are already plans in place (according to the H.R. manager) to cut crew hours to under 30 to avoid the mandate, so this is no myth.

This is a problem which must be solved, although this issue should not be used to hold a vote to repeal the ACA.  We have already had 40 stupid and useless gestures (to quote Brother Bluto of Delta House).  Another one is not required.  Everyone knows that the impetus to repeal is to void the taxation of non-wage income which funds much of the Act.  That is a non-starter.  Changing everything BUT that is possible because it would not draw a Budget Act Point of Order.  In this case, changing how marginal employees are treated for insurance purposes is a valid subject for corrective legislation.

The ending of marginal insurance policies should be allowed to go forward, however people should be able to negotiate prices as individuals for classes of service that are not needed.  Young people don’t need an annual colonoscopy, for example (unless they have a condition that requires it).  Of course, such discounts should be minor and should not lead to a return to the days where being female is both a pre-existing condition and a reason to charge higher premiums.

One needed change is to allow employers to exclude employees who are covered (not potentially covered, but actually covered) under the policy of a parent or spouse when determining whether mandates have been met.

While employers should also be able to exclude occasional workers who work less than the customary schedule for that position, anyone else who does work a customary schedule who is not otherwise insured as a dependent or spouse must be granted insurance under an employer mandate.   The hour threshold needs to be removed.

The penalty per employee should also be dropped.  Instead, the law should be amended to prohibit the tax subsidy for ANY employee if all are not insured.  One cannot beg poverty and insure managers, higher skilled employers and their families while leaving others to fend for themselves in subsidized Exchanges or Medicaid – both of which have significant taxpayer funding – as the Committee well knows.

Any other solution defies the basic fairness the Affordable Care Act was meant to provide.  Firms who cannot afford to insure their uninsured marginal employees should not be able to claim the ability to insure managers and franchise owners.  Indeed, in a perfect world franchisees would be considered part of the larger chain for the purposes of this act, so if individual stores cannot insure employees, headquarters and owners should also be excluded under the Employer Exclusion of health insurance.

I suspect I lost my audience among the House Majority at that one.  Business may or may not like it either.  Ethical firms who wish to ensure their employees will.  Those who consider it a burden will not.

I suspect the business community liked the original formulation – probably because it gave them a way to avoid paying insurance for marginal employees.  Such guile should not be rewarded.  Please amend the ACA to remove both the penalties and the threshold and simply ban firms who don’t insure anyone not otherwise insured from insuring ANYONE.  I suspect the threat of such a reform would likely cause most employers to suck it up and pay insurance to their marginal staff (in effect, pulling an Emily Latella by saying “Never mind.”).  As I don’t trust them to do the right thing, even under threat, I urge passage of the suggested amending legislation.


Thank you for the opportunity to address the committee and share what many of my generation regard as very real concerns, both as our parents age and we approach that stage of life where such decisions may apply to us.  I am, of course, available for direct testimony or to answer questions by members and staff.

Thursday, October 24, 2013

ACA RollOut Saga Continues | National Catholic Reporter

ACA RollOut Saga Continues | National Catholic Reporter by MSW.  MGB: The Church never admits when it it wrong, which it is on the question of whether federal funds cover abortions in Obamacare - at least any more than the tax subidy for corporations for the purchase of health insurance also funds abortion.  In reality, buying popcorn at your local multiplex is more likely than paying your taxes to lead to a money stream that leads to an abortion, as low wage laborers are more likely to use their money for abortion than a tax deferred insurance fund.  Most abortions are funded with cash.

On Obama and Sebelius, they are not IT guys.  They are attorneys and elected officials.  If you want to know the name of the person responsible for the roll-out problems, look to the Office of the Chief Information Officer at the Center for Medicare and Medicaid Services.  I suspect that this is where the decision was made to require sign up to view plan options.  If the decision was made higher up, that official or his staff should have politiely informed whomever came up with that idea that it would have dire technical consequences.  Sometimes the best thing someone in that job can do is say no to the boss.

The name is Tony Trenkle, although I suspect that it may have been whomever George Linares replaced, since George is now the acting CMS Cheif Technology Officer.  This may mean that his predecessor resigned over this flap already - or it could also mean that the vacancy contribued to the problem.  Of course, George could also be the civil servant who should have known better.  That is up to Sebelius to sort out - although I suspect she already has and is unwilling to throw the person recently retired under the bus publicly.

Here is the link to IT at CMS.

Wednesday, October 23, 2013

MSW v. CW | National Catholic Reporter

MSW v. CW | National Catholic Reporter by MSW.  MGB: The budget committee is a side show which will hopefully allow appropriations bills to get passed while no one is looking.  Sadly, they will probably wait.  I don't suspect major entitlement reform will happen, with the possible exception of the chained CPI - although that should only be allowed if the minimum wage is also increased and tied to the same inflation rate.  Increasing the Medicare Part B (and Part D) premium funding to 35% of program costs is also an option to be considered, but only if the Social Security base payment is increased - which could happen if we switched the employer contribution from a match to the employee levy to some kind of consumption tax (a Value Added Tax or a VAT-like Net Business Receipts Tax - the latter being useful if personal retirement accounts are being adopted - something Obama will never do) with every worker being credited with the same amount.  The alternative is to simply raise or eliminate the income caps and change the OASI bend points so that wealthier payers receive no windfall on the other end.  I prefer the VAT myself.  I just seems fairer and puts the redistirubtion up front.  Of course, many of those who want to "reform" entitlements really don't care as much about privatization as they do ending or minimizing redistriubtion.  Such people simply don't like Social Insurance as a concept.  I care little for their opinions.

Friday, October 18, 2013

Clark on Fiscal Priorities | National Catholic Reporter

Clark on Fiscal Priorities | National Catholic Reporter by MSW.  MGB: She is very correct.  Hopefully the new process will cut the sequester by at least half.

Friday, April 12, 2013

The President’s Fiscal Year 2014 Budget Proposals Department of Health and Human Services


Comments for the Record
U.S. House of Representatives
Committee on Ways and Means
The President’s Fiscal Year 2014 Budget Proposals
Department of Health and Human Services
Friday, April 12, 2013, 9:00 AM
By Michael G. Bindner
Center for Fiscal Equity

 Chairman Camp Ranking Member Levin, thank you for the opportunity to submit these comments for the record to the House Ways and Means Committee.  The beginning of the budget debate for a new year brings with it the opportunity to rethink proposals.  While our comments are largely the same as last year’s, recent events, such as chained CPI and the finding that health care reform is constitutional, but threatening to participation in Medicaid is not, will also be addressed.  As always, our proposals are in the context of our basic proposals for tax and budget reform, which are as follows:
  •  A Value Added Tax (VAT) to fund domestic military spending and domestic discretionary spending with a rate between 10% and 13%, which makes sure very American pays something.
  •  Personal income surtaxes on joint and widowed filers with net annual incomes of $100,000 and single filers earning $50,000 per year.
  •  Employee contributions to Old Age and Survivors Insurance (OASI) with a lower income cap, which allows for lower payment levels to wealthier retirees without making bend points more progressive.
  •  A VAT-like Net Business Receipts Tax (NBRT), which is essentially a subtraction VAT with additional tax expenditures for family support,  health care and the private delivery of governmental services, to fund entitlement spending and replace income tax filing for most people (including people who file without paying), the corporate income tax, business tax filing through individual income taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, disability insurance, unemployment insurance and survivors under age 60.


Discretionary activities of the Department of Health and Human Services would be funded by the VAT.  While some of our VAT proposals call for regional breakdowns of taxing and spending, they do not for this department.  While some activities, such as the Centers for Disease Control, exist outside the Washington, DC metro area, even these are site specific rather than spread out on a nation-wide basis to serve the public at large.  While some government activities benefit from national and regional distribution, health research will not.
The one reform that might eventually be considered in this area is to more explicitly link government funded research with ownership of the results, so that the Department might fund some of their operations with license agreements for some of the resulting research, enabling an expanded research agenda without demanding a higher budget allocation. 

Of course, regionalization is possible if the Uniformed Public Health Service is put into the role of seeing more patients, particularly elderly patients and lower income patients who are less than well served by cost containment strategies limiting doctor fees.  Medicaid is notoriously bad because so few doctors accept these patients due to the lower compensation levels, although we are encouraged the health care reform is attempting to reduce that trend.  Medicare will head down that road shortly if something is not done about the Doc Fix.  It may become inevitable that we expand the UPHS in order to treat patients who may no longer be able to find any other medical care.  If that were to happen, such care could be organized regionally and funded with regionally based taxes, such as a VAT.

The other possible area of cost savings has to do with care, now provided for free, on the NIH campus.  While patients without insurance should be able to continue to receive free care, patients with insurance likely could be required to make some type of payment for care and hospitalization, thus allowing an expansion of care, greater assistance to patients who still face financial hardship in association with their illnesses and a restoration of some care that has been discontinued due to budget cuts to NIH.

The bulk of our comments have to do with health and retirement security.

One of the most oft-cited reforms for dealing with the long term deficit in Social Security is increasing the income cap to cover more income while increasing bend points in the calculation of benefits, the taxability of Social Security benefits or even means testing all benefits, in order to actually increase revenue rather than simply making the program more generous to higher income earners.  Lowering the income cap on employee contributions, while eliminating it from employer contributions and crediting the employer contribution equally removes the need for any kind of bend points at all, while the increased floor for filing the income surtax effectively removes this income from taxation.  Means testing all payments is not advisable given the movement of retirement income to defined contribution programs, which may collapse with the stock market – making some basic benefit essential to everyone.
Moving the majority of Old Age and Survivors Tax collection to a consumption tax, such as the NBRT, effectively expands the tax base to collect both wage and non-wage income while removing the cap from that income.  This allows for a lower tax rate than would otherwise be possible while also increasing the basic benefit so that Medicare Part B and Part D premiums may also be increased without decreasing the income to beneficiaries.  Increasing these premiums essentially solves their long term financial problems while allowing repeal of the Doc Fix.

If personal accounts are added to the system, a higher rate could be collected, however recent economic history shows that such investments are better made in insured employer voting stock rather than in unaccountable index funds, which give the Wall Street Quants too much power over the economy while further insulating ownership from management.  Too much separation gives CEOs a free hand to divert income from shareholders to their own compensation through cronyism in compensation committees, as well as giving them an incentive to cut labor costs more than the economy can sustain for consumption in order to realize even greater bonuses. 

Employee-ownership ends the incentive to enact job-killing tax cuts on dividends and capital gains, which leads to an unsustainable demand for credit and money supply growth and eventually to economic collapse similar to the one most recently experienced.

Note that this proposal turns the President’s proposal for a chained CPI, which echoes both bipartisan study groups into an accounting reform, without the need to set up an additional fund for poor seniors, although some kind of advanced protection may be necessary for those who have aged out of their assets.  We suggest treating the Insurance Fund of employee owned companies as an annuity rather than an asset would satisfy this requirement.

The NBRT base is similar to a Value Added Tax (VAT), but not identical. Unlike a VAT, an NBRT would not be visible on receipts and should not be zero rated at the border – nor should it be applied to imports. While both collect from consumers, the unit of analysis for the NBRT should be the business rather than the transaction. As such, its application should be universal – covering both public companies who currently file business income taxes and private companies who currently file their business expenses on individual returns.

A key provision of our proposal is consolidation of existing child and household benefits, including the Mortgage Interest and Property Tax Deductions, into a single refundable Child Tax Credit of at least $500 per month, per child, payable with wages and credited against the NBRT rather than individual taxes.  Assistance at this level, especially if matched by state governments may very well trigger another baby boom, especially since adding children will add the additional income now added by buying a bigger house. Such a baby boom is the only real long term solution to the demographic problems facing Social Security, Medicare and Medicaid, which are more demographic than fiscal. Fixing that problem in the right way definitely adds value to tax reform.

The NBRT should fund services to families, including education at all levels, mental health care, disability benefits, Temporary Aid to Needy Families, Supplemental Nutrition Assistance, Medicare and Medicaid. Such a shift would radically reduce the budget needs of HHS, while improving services to vulnerable populations.

 The NBRT could also be used to shift governmental spending from public agencies to private providers without any involvement by the government – especially if the several states adopted an identical tax structure. Either employers as donors or workers as recipients could designate that revenues that would otherwise be collected for public schools would instead fund the public or private school of their choice. Private mental health providers could be preferred on the same basis over public mental health institutions. This is a feature that is impossible with the FairTax or a VAT alone.

To extract cost savings under the NBRT, allow companies to offer services privately to both employees and retirees in exchange for a substantial tax benefit, provided that services are at least as generous as the current programs. Employers who fund catastrophic care would get an even higher benefit, with the proviso that any care so provided be superior to the care available through Medicaid. Making employers responsible for most costs and for all cost savings allows them to use some market power to get lower rates, but not so much that the free market is destroyed.  Increasing Part B and Part D premiums also makes it more likely that an employer-based system will be supported by retirees.

Enacting the NBRT is probably the most promising way to decrease health care costs from their current upward spiral – as employers who would be financially responsible for this care through taxes would have a real incentive to limit spending in a way that individual taxpayers simply do not have the means or incentive to exercise. While not all employers would participate, those who do would dramatically alter the market. In addition, a kind of beneficiary exchange could be established so that participating employers might trade credits for the funding of former employees who retired elsewhere, so that no one must pay unduly for the medical costs of workers who spent the majority of their careers in the service of other employers.

Conceivably, NBRT offsets could exceed revenue. In this case, employers would receive a VAT credit.

The finding that the Affordable Care Act is constitutional for the most part opens up the question of whether it can survive on its own.  To put it bluntly, if the incentives for the uninsured are not adequate in the light of pre-existing condition reform to make them less risk averse than investors in the private insurance market, the whole house of cards may collapse – leading to either single payer or the enactment of a subsidized public option (which, given the nature of capitalism, will evolve into single payer).  While no one knows how the uninsured will react until next year, the investment markets will likely go south at the first sign of trouble.  We suggest to Secretary Sibelius that she have an option ready when this occurs.  Enactment of a tax like the NBRT will likely be necessary if this occurs.

As to the Medicaid decision, if enough states refuse the additional funding for Medicaid to cover the uninsured, the likely consequence should be total federal funding (which would also please adherents to the Hyde Amendment).

Thank you for the opportunity to address the committee.  We are, of course, available for direct testimony or to answer questions by members and staff.

Thursday, April 11, 2013

The President’s Fiscal Year 2014 Budget Proposal


Comments for the Record
United States House of Representatives
Committee on Ways and Means
The President’s Fiscal Year 2014 Budget Proposal
Wednesday, April 11, 2013, 10:00 AM

By Michael G. Bindner
Center for Fiscal Equity

Chairman Camp and Ranking Member Levin, thank you for the opportunity to submit these comments for the record to the House Ways and Means Committee.  The beginning of the budget debate for a new year brings with it the opportunity to readjust proposals in light of changing events.  This has certainly occurred with the passage of the American Taxpayer Relief Act of 2013 on January 2nd.  As you may recall, the Center for Fiscal Equity outlined four possible options for dealing with the coming Fiscal Cliff (which had not been so designated last year at this time).  They were automatic expiration of the tax cuts, partial expiration counting Budget Control Act cuts against making permanent the cuts for the poorest families, partial tax reform on the order of Bowles-Simpson or Rivlin-Domenici or something more radical, such as our proposals.  We did not suspect that the President would simply split the difference on who was wealthy to $400,000 per year with Congress agreeing to higher rates for dividends and capital gains in the 25% range for most wealthy taxpayers.  We also did not believe that the Sequester would be put into effect without offsetting these cuts with the Iraq and Afghanistan Peace Dividend (which we urge you do before airplanes fall out of the sky).

The President has offered solutions this year much like those of Domenici-Rivlin or Bowles-Simpson. Some of these have merit, but we don’t believe they go far enough.  More comprehensive tax and spending reform should remain on the table, including corporate tax reform. We believe, however, that if you touch corporate tax reform than individual income tax reform must also be dramatically overhauled along the lines we still suggest. with our four major provisions:

  • A Value Added Tax (VAT) to fund domestic military spending and domestic discretionary spending with a rate between 10% and 13%, which makes sure very American pays something.
  • Personal income surtaxes on joint and widowed filers with net annual incomes of $100,000 and single filers earning $50,000 per year to fund net interest payments, debt retirement and overseas and strategic military spending and other international spending, with graduated rates between 5% and 25% in either 5% or 10% increments.  Heirs would also pay taxes on distributions from estates, but not the assets themselves, with distributions from sales to a qualified ESOP continuing to be exempt.
  • Employee contributions to Old Age and Survivors Insurance (OASI) with a lower income cap, which allows for lower payment levels to wealthier retirees without making bend points more progressive.
  • A VAT-like Net Business Receipts Tax (NBRT), which is essentially a subtraction VAT with additional tax expenditures for family support,  health care and the private delivery of governmental services, to fund entitlement spending and replace income tax filing for most people (including people who file without paying), the corporate income tax, business tax filing through individual income taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, disability insurance, unemployment insurance and survivors under age 60.


We have no proposals regarding environmental taxes, customs duties, excise taxes and other offsetting expenses, although increasing these taxes would result in a lower VAT. American competitiveness is enhanced by enacting a VAT, as exporters can shed some of the burden of taxation that is now carried as a hidden export tax in the cost of their products.  The NBRT will also be zero rated at the border to the extent that it is not offset by deductions and credits for health care, family support and the private delivery of governmental services.

Some oppose VATs because they see it as a money machine, however this depends on whether they are visible or not.  A receipt visible VAT is as susceptible to public pressure to reduce spending as the FairTax is designed to be, however unlike the FairTax, it is harder to game.  Avoiding lawful taxes by gaming the system should not be considered a conservative principle, unless conservatism is in defense of entrenched corporate interests who have the money to game the tax code.
 
Our VAT rate estimates are designed to fully fund non-entitlement domestic spending not otherwise offset with dedicated revenues.  This makes the burden of funding government very explicit to all taxpayers.  Nothing else will reduce the demand for such spending, save perceived demands from bondholders to do so – a demand that does not seem evident given their continued purchase of U.S. Treasury Notes.

Value Added Taxes can be seen as regressive because wealthier people consume less, however when used in concert with a high-income personal income tax and with some form of tax benefit to families, as we suggest as part of the NBRT, this is not the case.

The shift from an income tax based system to a primarily consumption based system will dramatically decrease participation in the personal income tax system to only the top 20% of households in terms of income.  Currently, only roughly half of households pay income taxes, which is by design, as the decision has been made to favor tax policy to redistribute income over the use of direct subsidies, which have the stink of welfare.  This is entirely appropriate as a way to make work pay for families, as living wage requirements without such a tax subsidy could not be sustained by small employers.

The income surtax is earmarked for overseas military, naval sea and international spending because this spending is most often deficit financed in times of war.  Earmarking repayment of trust funds for Social Security and Medicare, acknowledges the fact that the buildup of these trust funds was accomplished in order to fund the spending boom of the 1980s without reversing the tax cuts which largely benefited high income households.

Earmarking debt repayment and net interest in this way also makes explicit the fact that the ability to borrow is tied to the ability to tax income, primarily personal income.  The personal or household liability for repayment of that debt is therefore a function of each household’s personal income tax liability.  Even under current tax law, most households that actually pay income taxes barely cover the services they receive from the government in terms of national defense and general government services.  It is only the higher income households which are truly liable for repayment of the national debt, both governmental and public.

If the debt is to ever be paid back rather than simply monetized, both domestically and internationally (a situation that is less sustainable with time), the only way to do so without decreasing economic growth is to tax higher income earners more explicitly and at higher rates than under current policy, or even current law.

The decrease in economic class mobility experienced in recent decades, due to the collapse of the union movement and the rapid growth in the cost of higher education, means that the burden of this repayment does not fall on everyone in the next generation, but most likely on those who are living in high income households now.

Let us emphasize the point that when the donors who take their cues from Americans for Tax Reform bundle their contributions in support of the No Tax Pledge, they are effectively burdening their own children with future debt, rather than the entire populace.  Unless that fact is explicitly acknowledged, gridlock over raising adequate revenue will continue.

Recent CBO projections on the size of the debt and the role of Net Interest are troubling, however, in that they show that while most discretionary and entitlement spending are projected to remain flat while net interest is due to explode.  It is helpful to explore the reasons for this.  This explosion essentially fuels the growth of the growth of the Dollar as the world’s currency.  Essentially, this means that we pay our expenses with taxation (even without adopting the Center for Fiscal Equity Plan) while we roll over our debt without repaying it.  This seems like a wonderful way for American consumers to continue to live like imperial Rome, however it cannot last.

There are two possible ends to this gravy train.  The first is the internationalization of the Dollar, the Federal Reserve and our entire political system into a world currency or government and its concurrent loss of national sovereignty or the eventual creation of rival currencies, like a tradable Yuan or a consolidated European Debt and Income Tax to back its currency.  In the prior case, all nations which use the Dollar will contribute to an expanded income tax to repay or finance the interest on the global debt.  In the second case, the American taxpayer will be required to pay the debt back – and because raising taxes on all but the wealthy will hurt the economy, it will be the wealthy and their children who will bear the burden of much higher tax levies.

In order to avert either crisis, there are two possibilities.  The first is the elimination of deductions, including the Charitable Deduction itemized on personal income taxes – especially for the wealthy.  If the charitable sector, from the caring community to the arts, industrial and education sectors, convince wealthier taxpayers to fight for this deduction, then the only alternative is higher rates than would otherwise occur, possibly including a much more graduated tax system.

Unlike other proposals, a graduated rate for the income surtax is suggested, as at the lower levels the burden of a higher tax rate would be more pronounced.  More rates make the burden of higher rates easier to bear, while actually providing progressivity to the system rather than simply offsetting the reduced tax burden due to lower consumption and the capping of the payroll tax for Old Age and Survivors Insurance.

One of the most oft-cited reforms for dealing with the long term deficit in Social Security is increasing the income cap to cover more income while increasing bend points in the calculation of benefits, the taxability of Social Security benefits or even means testing all benefits, in order to actually increase revenue rather than simply making the program more generous to higher income earners.  Lowering the income cap on employee contributions, while eliminating it from employer contributions and crediting the employer contribution equally removes the need for any kind of bend points at all, while the increased floor for filing the income surtax effectively removes this income from taxation.  Means testing all payments is not advisable given the movement of retirement income to defined contribution programs, which may collapse with the stock market – making some basic benefit essential to everyone.

Moving the majority of Old Age and Survivors Tax collection to a consumption tax, such as the NBRT, effectively expands the tax base to collect both wage and non-wage income while removing the cap from that income.  This allows for a lower tax rate than would otherwise be possible while also increasing the basic benefit so that Medicare Part B and Part D premiums may also be increased without decreasing the income to beneficiaries.

If personal accounts are added to the system, a higher rate could be collected, however recent economic history shows that such investments are better made in insured employer voting stock rather than in unaccountable index funds, which give the Wall Street Quants too much power over the economy while further insulating ownership from management.  Too much separation gives CEOs a free hand to divert income from shareholders to their own compensation through cronyism in compensation committees, as well as giving them an incentive to cut labor costs more than the economy can sustain for purposes of consumption in order to realize even greater bonuses.  Employee-ownership ends the incentive to enact job-killing tax cuts on dividends and capital gains, which leads to an unsustainable demand for credit and money supply growth and eventually to economic collapse similar to the one most recently experienced.

The NBRT base is similar to a Value Added Tax (VAT), but not identical. Unlike a VAT, an NBRT would not be visible on receipts and should not be zero rated at the border – nor should it be applied to imports. While both collect from consumers, the unit of analysis for the NBRT should be the business rather than the transaction. As such, its application should be universal – covering both public companies who currently file business income taxes and private companies who currently file their business expenses on individual returns.

In the long term, the explosion of the debt comes from the aging of society and the funding of their health care costs.  Some thought should be given to ways to reverse a demographic imbalance that produces too few children while life expectancy of the elderly increases.
Unassisted labor markets work against population growth.  Given a choice between hiring parents with children and recent college graduates, the smart decision will always be to hire the new graduates, as they will demand less money – especially in the technology area where recent training is often valued over experience.

Separating out pay for families allows society to reverse that trend, with a significant driver to that separation being a more generous tax credit for children.  Such a credit could be “paid for” by ending the Mortgage Interest Deduction (MID) without hurting the housing sector, as housing is the biggest area of cost growth when children are added.  While lobbyists for lenders and realtors would prefer gridlock on reducing the MID, if forced to chose between transferring this deduction to families and using it for deficit reduction (as both Bowles-Simpson and Rivlin-Domenici suggest), we suspect that they would chose the former over the latter if forced to make a choice.  The religious community could also see such a development as a “pro-life” vote, especially among religious liberals.

Enactment of such a credit meets both our nation’s short term needs for consumer liquidity and our long term need for population growth.  Adding this issue to the pro-life agenda, at least in some quarters, makes this proposal a win for everyone.

The expansion of the Child Tax Credit is what makes tax reform worthwhile. Adding it to the employer levy rather than retaining it under personal income taxes saves families the cost of going to a tax preparer to fully take advantage of the credit and allows the credit to be distributed throughout the year with payroll. The only tax reconciliation required would be for the employer to send each beneficiary a statement of how much tax was paid, which would be shared with the government. The government would then transmit this information to each recipient family with the instruction to notify the IRS if their employer short-changes them. This also helps prevent payments to non-existent payees.

Assistance at this level, especially if matched by state governments may very well trigger another baby boom, especially since adding children will add the additional income now added by buying a bigger house. Such a baby boom is the only real long term solution to the demographic problems facing Social Security, Medicare and Medicaid, which are more demographic than fiscal. Fixing that problem in the right way definitely adds value to tax reform.
The NBRT should fund services to families, including education at all levels, mental health care, disability benefits, Temporary Aid to Needy Families, Supplemental Nutrition Assistance, Medicare and Medicaid. If society acts compassionately to prisoners and shifts from punishment to treatment for mentally ill and addicted offenders, funding for these services would be from the NBRT rather than the VAT.

The NBRT could also be used to shift governmental spending from public agencies to private providers without any involvement by the government – especially if the several states adopted an identical tax structure. Either employers as donors or workers as recipients could designate that revenues that would otherwise be collected for public schools would instead fund the public or private school of their choice. Private mental health providers could be preferred on the same basis over public mental health institutions. This is a feature that is impossible with the FairTax or a VAT alone.

To extract cost savings under the NBRT, allow companies to offer services privately to both employees and retirees in exchange for a substantial tax benefit, provided that services are at least as generous as the current programs. Employers who fund catastrophic care would get an even higher benefit, with the proviso that any care so provided be superior to the care available through Medicaid. Making employers responsible for most costs and for all cost savings allows them to use some market power to get lower rates, but not so much that the free market is destroyed.  Increasing Part B and Part D premiums also makes it more likely that an employer-based system will be supported by retirees.

Enacting the NBRT is probably the most promising way to decrease health care costs from their current upward spiral – as employers who would be financially responsible for this care through taxes would have a real incentive to limit spending in a way that individual taxpayers simply do not have the means or incentive to exercise. While not all employers would participate, those who do would dramatically alter the market. In addition, a kind of beneficiary exchange could be established so that participating employers might trade credits for the funding of former employees who retired elsewhere, so that no one must pay unduly for the medical costs of workers who spent the majority of their careers in the service of other employers.

Conceivably, NBRT offsets could exceed revenue. In this case, employers would receive a VAT credit.

In testimony before the Senate Budget Committee, Lawrence B. Lindsey explored the possibility of including high income taxation as a component of a Net Business Receipts Tax. The tax form could have a line on it to report income to highly paid employees and investors and pay surtaxes on that income.

The Center considered and rejected a similar option in a plan submitted to President Bush’s Tax Reform Task Force, largely because you could not guarantee that the right people pay taxes. If only large dividend payments are reported, then diversified investment income might be under-taxed, as would employment income from individuals with high investment income. Under collection could, of course, be overcome by forcing high income individuals to disclose their income to their employers and investment sources – however this may make some inheritors unemployable if the employer is in charge of paying a higher tax rate. For the sake of privacy, it is preferable to leave filing responsibilities with high income individuals.

Dr. Lindsey also stated that the NBRT could be border adjustable.  We agree that this is the case only to the extent that it is not a vehicle for the offsets described above, such as the child tax credit, employer sponsored health care for workers and retirees, state-level offsets for directly providing social services and personal retirement accounts.  Any taxation in excess of these offsets could be made border adjustable and doing so allows the expansion of this tax to imports to the same extent as they are taxed under the VAT.  Ideally, however, the NBRT will not be collected if all employers use all possible offsets and transition completely to employee ownership and employer provision of social, health and educational services.

Thank you for the opportunity to address the committee.  We are, of course, available for direct testimony or to answer questions by members and staff.

Tuesday, March 19, 2013

Hearing on Tax Reform and Tax Provisions Affecting State and Local Governments

Comments for the Record
U.S. House of Representatives
Committee on Ways and Means
Hearing on Tax Reform and Tax Provisions Affecting State and Local Governments
Tuesday, March 19, 2013, 10:00 AM

By Michael G. Bindner
Center for Fiscal Equity



Chairman Camp and Ranking Member Levin, thank you for the opportunity to submit these comments for the record to the Committee on Ways and Means. They are substantially similar to our comments in April of last year to the Senate Finance Committee. Feel free to contact us for a more in depth briefing on our testimony for either members or staff. As always, our comments are in the context of our four part tax reform plan:

• A Value Added Tax (VAT) to fund domestic military spending and domestic discretionary spending with a rate between 10% and 13%, which makes sure very American pays something.

• Personal income surtaxes on joint and widowed filers with net annual incomes of $100,000 and single filers earning $50,000 per year to fund net interest payments, debt retirement and overseas and strategic military spending and other international spending, with graduated rates between 5% and 25% in either 5% or 10% increments. Heirs would also pay taxes on distributions from estates, but not the assets themselves, with distributions from sales to a qualified ESOP continuing to be exempt.

• Employee contributions to Old Age and Survivors Insurance (OASI) with a lower income cap, which allows for lower payment levels to wealthier retirees without making bend points more progressive.

• A VAT-like Net Business Receipts Tax (NBRT), which is essentially a subtraction VAT with additional tax expenditures for family support, health care and the private delivery of governmental services, to fund entitlement spending and replace income tax filing for most people (including people who file without paying), the corporate income tax, business tax filing through individual income taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, disability insurance, unemployment insurance and survivors under age 60.

Our proposals have several impacts on state and local tax and fiscal policy. Those states with fixed conformity provisions regarding income taxation in law or their constitutions will be greatly affected by enactment of a simplified income tax which treats distributions from inheritance as normal income. Indeed, if they do not enact similar reform, which includes a much higher income floor for filing, many more heirs will be touched by this provision than in federal law. As most state income tax rate structures are much less progressive than the federal system, many states will be able to abandon income taxation altogether, possibly increasing use of Land Value Taxes if some form of redistributive tax is still desired.

If the basic structure of reform is adopted in the states, the biggest change will be the need for a common base between federal and state consumption taxes. Shifting from retail sales taxes and gross receipts taxes to value added taxes and VAT-like net business receipts taxes will change the nature of most state taxation, while enabling ease of collection of taxes on online sales, since taxes would be levied at every stage of the production process.

If a common base agreement can be negotiated for these taxes, state treasurers can collect both their own taxes and the federal taxes, as well as analytical information on tax credit usage, which can then be shared with the U.S. Internal Revenue Service in order to track income accruing to payers of the federal high income surtax, as well as to recipients of the federal child tax credit, which would be paid to employees with wages under the NBRT and then verified by a mailing from both the employer and the Internal Revenue Service, with employees verifying that their employees paid every dollar to them reported as a credit.

Our hope is that states would match the Child Tax Credit at a level consistent with their cost of living. Some states might even include higher credits for certain high-cost counties, for instance, Northern Virginia.

The NBRT at both the state and federal levels should fund services to families, including education at all levels, mental health care, disability benefits, Temporary Aid to Needy Families, Supplemental Nutrition Assistance, Medicare and Medicaid. If society acts compassionately to prisoners and shifts from punishment to treatment for mentally ill and addicted offenders, funding for these services would be from the NBRT rather than the VAT.

States may also include several of the educational and social service credits recommended under our proposal. The NBRT could be used to shift governmental spending from public agencies to private providers without any involvement by the government – especially if the several states adopted an identical tax structure. Either employers as donors or workers as recipients could designate that revenues that would otherwise be collected for public schools would instead fund the public or private school of their choice. Private mental health providers could be preferred on the same basis over public mental health institutions. This is a feature that is impossible with the FairTax or a VAT alone.

To extract health care cost savings under the NBRT, allow companies to offer services privately to both employees and retirees in exchange for a substantial tax benefit, provided that services are at least as generous as the current programs. Employers who fund catastrophic care would get an even higher benefit, with the proviso that any care so provided be superior to the care available through Medicaid. Making employers responsible for most costs and for all cost savings allows them to use some market power to get lower rates, but not so much that the free market is destroyed. Increasing Part B and Part D premiums also makes it more likely that an employer-based system will be supported by retirees.

Enacting the NBRT is probably the most promising way to decrease health care costs from their current upward spiral – as employers who would be financially responsible for this care through taxes would have a real incentive to limit spending in a way that individual taxpayers simply do not have the means or incentive to exercise. While not all employers would participate, those who do would dramatically alter the market. In addition, a kind of beneficiary exchange could be established so that participating employers might trade credits for the funding of former employees who retired elsewhere, so that no one must pay unduly for the medical costs of workers who spent the majority of their careers in the service of other employers.

Conceivably, NBRT offsets could exceed revenue. In this case, employers would receive a VAT credit.

There will be no impact on the states of FICA reforms, except to the extent that our suggested reforms yield a higher base benefit for seniors, which will decrease their need for state social service benefits.

Income tax simplification will eliminate the deduction for state income and property taxes. The extent to which state income taxes are eliminated will also eliminate the demand for these, although if states adopt higher land value taxes for redistributive purposes, some residual deduction for this tax may need to be included in the federal tax code, although doing so will simply require higher federal rates to make up the difference. Additionally, abandonment of the state income tax deduction has been seen as a reason to entirely federalize Medicaid as an offset. Doing so may be appropriate, however if participants in subsidized and paid adult education are covered by the provider’s insurance as if employees and retirees long term care needs are increasingly covered by the firms they retired from as an offset to Net Business Receipts Taxes, the question of funding Medicaid may be a minor footnote.

Thank you for the opportunity to address the committee. We are, of course, available for direct testimony or to answer questions by members and staff.

Friday, March 15, 2013

MPAC’s March Report to Congress


Comments for the Record
U.S. House of Representatives
Committee on Ways and Means
Subcommittee on Health
Hearing on MPAC’s March Report to Congress
March 15, 2013, 9:30 AM
by Michael G. Bindner
The Center for Fiscal Equity


Chairman Brady and Ranking Member McDermott, thank you for the opportunity to submit my comments on this topic.  As there has been turn-over in the membership of the committee, we will largely repeat our comments from last year, which provide real alternatives to current policy, as well as current problems that no one is talking about relating to the implementation of the Affordable Care Act.  We are always available to brief members and staff individually on our comments or respond to any questions.

It is always important to note that the whole purpose of social insurance is to prevent the imposition of unearned costs and payment of unearned benefits by not only the beneficiaries, but also their families.  Cuts which cause patients to pick up the slack favor richer patients, richer children and grand children, patients with larger families and families whose parents and grandparents are already deceased, given that the alternative is higher taxes on each working member.  Such cuts would be an undue burden on poorer retirees without savings, poor families, small families with fewer children or with surviving parents, grandparents and (to add insult to injury) in-laws.

Recent history shows what happens when benefit levels are cut too drastically.  Prior to the passage of Medicare Part D, provider cuts did take place in Medicare Advantage (as they have recently).  Utilization went down until the act made providers whole and went a bit too far the other way by adding bonuses (which were reversed in the Affordable Care Act).  There is a middle ground and the Subcommittee’s job is to find it.

Resorting to premium support, along with the repeal of the ACA, have been suggested to save costs.  Without the ACA pre-existing condition reforms, mandates and insurance exchanges, however, premium support will not work because people will have no assurance of affordable coverage.  This, of course, assumes that private insurance survives the imposition of pre-existing condition reforms.  We do not have to wait until implementation to examine this question.  Now that the Supreme Court has spoken, the stock market will examine it for us.  There may well be a demand for reform before the election if the prospects for private insurance are found wanting.  Conversely, if stock prices are maintained, it is the market expecting mandates to be adequate.

Assuming mandates are seen as inadequate, the questions of both premium support and the adequacy of provider payments are moot, since if private insurance fails the only alternatives are single-payer insurance and a pre-emptive repeal of mandates and protections in favor of a subsidized public option.  The funding of either single-payer or a public option subsidy will dwarf the requirement to fund adequate provider payments in Medicare and Medicaid.

Resorting to single-payer catastrophic insurance with health savings accounts would not work as advertised, as health care is not a normal good.  People will obtain health care upon doctor recommendations, regardless of their ability to pay.  Providers will then shoulder the burden of waiting for health savings account balances to accumulate – further encouraging provider consolidation.  Existing trends toward provider consolidation will exacerbate these problems, because patients will lack options once they are in a network, giving funders little option other than paying up as demanded.

The question of Accountable Care Organizations and cost sharing with payments is also relevant.  The Senate Finance Committee addressed this question last year.  Hearing witnesses focused on Accountable Care Organizations and other possible solutions to bend the cost curve.  This emphasis is all well and good of most beneficiaries of Medicare, Medicaid and other forms of directly and indirectly subsidized insurance in most years.  Focusing on results is a worthy goal for both patient well being and cost control, provided the patient can be treated.  Medicare, however, devotes significant resources to the expensive care found in the last year of life, which may involve multiple hospitalizations, full time nursing services through Medicaid or a period of intensive care which ultimately proves unsuccessful.  In all of these circumstances, particularly the last, unless we are willing to either have doctors deny care or force survivors to pay bills that the government refuses to pay, some form of fee for service is necessary.

In April of 1998, our Principal’s father, Jim Bindner, had a heart attack, due in part to either an undetected acute episode of diverticulitis (which was not detected until autopsy) and in part to a lack of oxygen resulting from successful radiation treatment for metastatic lung cancer.  Had this attack occurred today, there is a chance that advances in emergency medicine, including cooling of the patient, might have resulted in a successful outcome.  This strategy, however, did not exist in 1998 and is still not widely practiced.  As a result, resuscitation was incomplete and Mr. Bindner was left in a coma in intensive care for almost a week before he passed.

The relevant question is, what would a results based medicine scenario pay for in situations such as this?  Would the government have forced Mercy Medical Center to simply eat the costs?  If so, would there have been pressure from the hospital to end care sooner?  Would the alternative have been a copayment for these services for the family?  
Worse yet, would someone have forced the choice on Mrs. Bindner to either agree to payment or discontinue life support earlier to save cost?  These are the questions that such modalities as results based payment bring forward loud and clear and they will hit every family with children of a certain age.  This is not the specter of the death panel.  It is something much worse – a demand to agree to pay or make a tragic decision at the most difficult time in anyone’s life.

Tragically, Mrs. Bindner followed her husband in death last year one month after our last comments.  We were not faced with a decision to disconnect before we were ready, although we did withdraw support and allow her to die in peace once it was confirmed there was no brain function.  If it had been the choice of some insurance bureaucrat rather than our choice, a tragic situation would have been made worse.

While some families could, of course, afford to pay for greater end of life services, the prospect that money might by longer life, or a greater chance for miraculous recovery to occur, would turn such care from what is now a right to a commodity.  The Center finds this unacceptable.

In fee for service medicine, this choice is simply not required.  Certainly the richest society on the planet can afford to allow women facing imminent widowhood to avoid such heart breaking choices if possible.  Recent reforms have essentially turned the Medicare Part A Payroll Tax into a virtual consumption tax already by taxing non-wage income above $250,000 a year.  It would be as easy to shift from a payroll tax to a value added or VAT-like net business receipts tax (which allows for offsets for employer provided care or insurance) and would likely raise essentially the same amount of money, as most non-wage income actually goes to individuals now liable for increased taxes.  If a VAT system is used, tax rates can be made lower because overseas labor will essentially be taxed, leaving more income for American workers while raising adequate revenue.

Premium support systems would not have any impact at all on end of life care decisions, except to the extent that they lead to cost cutting and the kind of choices mentioned above that we can all hopefully agree are abhorrent.  Ultimately, this negates much of the cost savings that could come from premium support, so this idea should be dropped.

A single-payer catastrophic plan would guarantee payment by the widow of any difference between the catastrophic deductible and the accumulated health savings account.  This, again, is the last thing any widow should have to face, even if the survivors have adequate insurance.

Replacing payroll taxes with Value Added Tax (VAT) funding will have no impact on whether fee for service medicine at the end of life continues, except for the fact that more adequate funding makes the need to save costs less urgent. 

Shifting to more public funding of health care in response to future events is neither good nor bad.  Rather, the success of such funding depends upon its adequacy and its impact on the quality of care – with inadequate funding and quality being related.

One form of increased funding could very well be higher Part B and Part D premiums.  This has been suggested by both the Fiscal Commission and the Bipartisan Policy Center.  In order to accomplish this, however, a higher base premium in Social Security would be necessary.  Our proposal is that to do this, the employee income cap on contributions should actually be lowered to decrease the entitlement for richer retirees while the employer income cap is eliminated, the employer and employee payroll taxes are decoupled and the employer contribution credited equally to each employee at some average which takes in all income.  If a payroll tax is abandoned in favor of some kind of consumption tax, all income, both wage and non-wage, would be taxed and the tax rate may actually be lowered.

Ultimately, fixing health care reform will require more funding, probably some kind of employer payroll or net business receipts tax – which would also fund the shortfall in Medicare and Medicaid (and take over most of their public revenue funding), regardless of whether Part B and D premiums are adjusted.  If the same consumption tax pays both retirement income and government health plans, the impact on the taxpayer is exactly nil in the long term.  

We will now move to an analysis of funding options and their impact on patient care and cost control.

The committee well understands the ins and outs of increasing the payroll tax, so we will confine our remarks to a fuller explanation of Net Business Receipts Taxes (NBRT). Its base is similar to a Value Added Tax (VAT), but not identical.

Unlike a VAT, an NBRT would not be visible on receipts and should not be zero rated at the border – nor should it be applied to imports. While both collect from consumers, the unit of analysis for the NBRT should be the business rather than the transaction. As such, its application should be universal – covering both public companies who currently file business income taxes and private companies who currently file their business expenses on individual returns.

The key difference between the two taxes is that the NBRT should be the vehicle for distributing tax benefits for families, particularly the Child Tax Credit, the Dependent Care Credit and the Health Insurance Exclusion, as well as any recently enacted credits or subsidies under the ACA. In the event the ACA is reformed, any additional subsidies or taxes should be taken against this tax (to pay for a public option or provide for catastrophic care and Health Savings Accounts and/or Flexible Spending Accounts).

The NBRT can provide an incentive for cost savings if we allow employers to offer services privately to both employees and retirees in exchange for a substantial tax benefit, either by providing insurance or hiring health care workers directly and building their own facilities. Employers who fund catastrophic care or operate nursing care facilities would get an even higher benefit, with the proviso that any care so provided be superior to the care available through Medicaid. Making employers responsible for most costs and for all cost savings allows them to use some market power to get lower rates, but no so much that the free market is destroyed. 

This proposal is probably the most promising way to arrest health care costs from their current upward spiral – as employers who would be financially responsible for this care through taxes would have a real incentive to limit spending in a way that individual taxpayers simply do not have the means or incentive to exercise. While not all employers would participate, those who do would dramatically alter the market. In addition, a kind of beneficiary exchange could be established so that participating employers might trade credits for the funding of former employees who retired elsewhere, so that no one must pay unduly for the medical costs of workers who spent the majority of their careers in the service of other employers.

The NBRT would replace disability insurance, hospital insurance, the corporate income tax, business income taxation through the personal income tax and the mid range of personal income tax collection, effectively lowering personal income taxes by 25% in most brackets.

Note that collection of this tax would lead to a reduction of gross wages, but not necessarily net wages – although larger families would receive a large wage bump, while wealthier families and childless families would likely receive a somewhat lower net wage due to loss of some tax subsidies and because reductions in income to make up for an increased tax benefit for families will likely be skewed to higher incomes. For this reason, a higher minimum wage is necessary so that lower wage workers are compensated with more than just their child tax benefits.

Adoption of the NBRT does offer some interesting questions to the extent that offsets are allowed.  This shifts the ethical locus from the government to employers, although the government would, of course, require superior coverage to use any offsets.  Still, the decision-makers on the ground would not be someone at CMMS, but someone in the corporate benefits office.  While the practice of buying life insurance for employees with the firm as beneficiary certainly mitigates the cost, it might also appear ethically problematic if the payout encourages the disconnection of support earlier than the family finds comfortable.

The form of the employer’s company providing care in lieu of tax payment matters in this case.  A firm with outside shareholders, even if it is a model of compassion, will always be looked upon as potentially untrustworthy in allocating end of life care, especially given their greater incentive to do so to minimize costs which would otherwise go to profit.  Employee-owned firms, however, might be regarded as more trustworthy making these decisions, since employees would be responsible to each other rather than to outside owners for cost minimization.  We believe such firms are less likely to force hard end of life choices on widows, at least for financial considerations.

As we have stated previously, shifting the Old Age, Survivors and Disability Insurance Employer Payroll Tax to a VAT-like Net Business Receipts Tax can facilitate the accumulation of employee-owned shares, especially if a faster transition which includes current retirees, who must be made whole (with some of these transition funds being provided by the U.S. Treasury from the OASI Trust Fund), will result in a lower NBRT levy immediately and in the future.  Converting retained equity to employee-ownership may give some firms the opportunity to transition far quicker than any other plan envisions.

These proposals can solve the problem of rural health care as well.  Provided employers don’t relocate (and more employee-ownership makes this less likely), the infrastructure which provided health care to workers would continue to exist for retirees.  Employee-owned firms might also take on sponsoring the training of doctors with the condition that they locate in rural areas where they operate and have retirees.

In a single payer or public option system, incentives can be paid to doctors who move to rural areas.  Of course, if we simply expanded the Uniformed Public Health Service to a British style National Health System, there is no issue of where doctors want to practice, they would simply be assigned to the areas where they were needed.

Currently, much in the way of rural health care comes from members of the Catholic Health Association.  In our previous example, end of life care was provided in such a hospital in a rural area.  As long as these hospitals continue to exist, there will be some base of health care in rural areas – provided we as a nation do not take advantage of their charity by cutting provider rates with the expectation that they will always be a low cost provider or raise money to pick up the slack.  The Sisters who own and run these hospitals have a retirement income crisis of their own, so deliberately underpaying them is not a good long term strategy for assuring rural health care exists in the long term.

Thank you for the opportunity to address the committee.  We are, of course, available for direct testimony or to answer questions by members and staff.

Thursday, March 14, 2013

Securing the Future of the Social Security Disability Insurance Program

Comments for the Record

House Ways and Means Committee

Subcommittee on Social Security


Hearing on Securing the Future of the Social Security Disability Insurance Program
Thursday, March 14, 2013, 10:00 A.M.
by Michael Bindner
The Center for Fiscal Equity
  
Chairman Johnson and Ranking Member Becerra, thank you for the opportunity to submit our comments on this topic. These are our fourth comments on this issue, which will focus on the funding shortfall and our proposal to deal with it. The previous comments were made to December 2, 2011, the second to December 9, 2011 and the third to September 14, 2012. As always, we are available to individually brief members and staff about our proposals.
  
On the demand side, people have entered disability due to detrimental changes in the welfare program, where states shuttled hard cases into Disability from TANF. If Congress wishes to reverse this, it must make TANF less punitive and turn it into a ladder to develop able minds rather than able bodies.

Congress can also enact a refundable expanded Child Tax Credit of $500 per month per child for all workers and TANF/Disability/UI beneficiaries, as well as encouraging longevity payment with employer stock and dividends, so that the incentive to fire workers that could be productive goes away and the incentive to have them claim disability reduces.

Waiting limits can be eliminated entirely, which saves money on legal fees. The initial award can be made in cooperation with the last employer, who would provide at least a portion of disability income as well as rehabilitative training in lieu of a higher disability insurance tax payment. Such a system would bring about faster determinations of disability, without the need to provide a case management and appeal infrastructure which provides make-work for both bureaucrats and disability lawyers, both of which add no real value to the program while costing taxpayers more and more as backlogs continue to grow and cases are summarily denied on the first reading.

As stated, our proposed solutions are made in the context of a four part tax reform, which form the basis of our analysis. The key elements are:

  • A Value Added Tax (VAT) to fund domestic military spending and domestic discretionary spending with a rate between 10% and 13%, which makes sure that every American family pays something.
  • Personal income surtaxes on joint and widowed filers with net annual incomes of $100,000 and single filers earning $50,000 per year to fund net interest payments, debt retirement and overseas and strategic military spending and other international spending, with graduated rates between 5% and 25% in either 5% or 10% increments. Heirs would also pay taxes on distributions from estates, but not the assets themselves, with distributions from sales to a qualified ESOP continuing to be exempt.
  • Employee contributions to Old Age and Survivors Insurance (OASI) with a lower income cap, which allows for lower payment levels to wealthier retirees without making bend points more progressive.
  • A VAT-like Net Business Receipts Tax (NBRT), which is essentially a subtraction VAT with additional tax expenditures for family support, health care and the private delivery of governmental services, to fund entitlement spending and replace income tax filing for most people (including people who file without paying), the corporate income tax, business tax filing through individual income taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, disability insurance, unemployment insurance and survivors under age 60.

In summary, our solution is to shift funding for disability insurance and rehabilitation entirely to an employer-paid, VAT-like Net Business Receipts Tax, with the payment of disability benefits and rehabilitative care to be covered by either the last employer or a future employer who wishes to take on the new employee’s “case” and provide both continued benefits and services until that worker can be productive without continued assistance.

The separate disability payroll tax will be repealed. Repealing this tax provides a justification for decoupling the benefit level from past income. An income based benefit should be replaced with a standard benefit. During the application phase, instead of forcing participants onto state welfare rolls, the last employer would pay the standard benefit – which should be at least the minimum wage for a full time worker, if not higher – with this payment offsetting the employers NBRT liability and, if necessary, its VAT collections.

If the employee has dependent children, each child will also receive the refundable expanded Child Tax Credit with their benefits (currently estimated at $50o per child per month). Please note that we propose elsewhere that the minimum wage be increased to $12 an hour so that no one is paid primarily through the Child Tax Credit and that both the minimum wage and the credit be automatically adjusted for inflation.

As stated elsewhere, the expansion of the credit is funded by consolidating it with the Earned Income Tax Credit, the deduction for children and limitations on or elimination of the mortgage interest and property tax deductions. The extension of this credit to non-workers is offset by abolishing supplemental retirement programs, such as Supplemental Nutrition Assistance and housing assistance.

Once the application process is complete, the Federal (or regional) government will distribute payments, as well as the expanded refundable Child Tax Credit for any dependent children, all of whom would qualify for Medicare, including any long term care provisions transferred to the federal government from the Medicaid program.

If vocational or educational training is required, as it likely should be in some cases, then the training provider will serve as both “case worker” and conduit for additional benefits, including the Child Tax Credit. Participants would be paid the minimum wage for engaging in training, along with any additional stipend provided to program beneficiaries of the benefit level were set higher.

Client health care would be funded by the federal government, but could conceivably be provided through the health care system provided to employees of the training provider. This is also our proposal for providing education to TANF beneficiaries. This care could take the form of health insurance or of staff medical personnel and facilities. In the event health care reform devolves into a public option or single payer system, the question of who pays for health care will be moot.

Clients who are incapable of completing training and finding employment will be transferred back to beneficiary status, with the training provider paying benefits during any transition period.

Program participants, like TANF participants, would not pay OASI payroll taxes, nor would program providers pay an employer contribution on their behalf or distribute any personal retirement account shares to them as an offset to their Net Business receipts taxes.

Unless they have significant outside income from an inheritance, tort judgment or lottery prize, it is doubtful that program participants will be hit with the Income and Inheritance Surtax. In any case, benefits and tax credits received would not be counted in determining adjusted gross income for this tax, although training stipends probably should be.

Program participation should not be means tested based on any judgment, although beneficiaries of significant inheritances should probably be excluded from the program, although that level should be set rather high – likely at the level where such benefits are taxed, currently proposed at $50,000 for individuals and $100,000 for joint filers and qualifying widow(er)s.

While these program efficiencies will likely save money on administrative costs, they will not cure the demographic problem entirely. Some increases in revenue, in this case, the Net Business Receipts Tax may indeed be required periodically under the logic of social insurance.

As stated previously, the logic of social insurance is to spread out benefits and harms from unearned demographic factors. Some people come from large families or rich families who can cushion the blow for a disabled child or sibling will have no problem making up for program short-comings. Those who have no family or whose illnesses have estranged them from their families would experience unearned hardship.

Resorting to increased public funding to adequately fund the program in current years by adjusting the NBRT should happen without controversy – especially given the incentives to minimize costs inherent in allowing employers a role in the determination and rehabilitative process. One could even imagine leaving the setting of the NBRT rate to a formula based on the needs of the various programs it funds and the extent to which employers utilize alternatives. Indeed, a high NBRT rate might lead to zero collections if it spurs employer action to improve services to employees.

Thank you for this opportunity to share these ideas with the subcommittee. We are always available to discuss them further with members, staff and the general public.

Tuesday, March 05, 2013

Tax Ramifications of the President’s Health Care Law

Comments for the Record
United States House of Representatives
Committee on Ways and Means
Subcommittee on Health


Hearing on the Tax Ramifications of the President’s Health Care Law
Tuesday, March 5, 2013, 11:00 AM

by Michael G. Bindner
The Center for Fiscal Equity


Chairman Boustany and Ranking Member McDermott, thank you for the opportunity to submit my comments on this topic. We must note that because the law is actually part of the U.S. Code, it is time to quit identifying it only with the President. It was used as an election issue in 2012 and the results speak for themselves. It is now time to tone down the rhetoric, especially given the electoral composition of the Senate and the resistance by both parties to end the filibuster.

The main issue remaining from last year’s Supreme Court ruling is the expansion of Medicaid rolls and the opposition in some states to doing so. While that has seemed to be just posturing in some states, it may lead to the need to federalize the entire Medicaid program, which might occur as part of a comprehensive tax reform, such as the one suggested by the Center.

We believed at the time that opposition to the Law had nothing to do with mandates, the Commerce Clause or Medicaid funding. The real reason conservative major donors don't like the law is the funding mechanism for much of reform. These donors were ot successful in court or at the ballot box, so the American Taxpayer Relief Act of 2012 went into full force without stopping those provisions of the Affordable Care Act they objected to. These donors were writing checks because of provisions creating additional taxes on un-earned income that fix Medicare Part A funding and fund other health care reform, essentially turning the Hospital Insurance Tax into a Value Added Tax with an exemption on profits paid to the 98%. Fighting for repeal on this basis, however, would only be politically unpopular.

There is now no reason to repeal the ACA unless the new funding on high income earners is replaced by a broader consumption tax. As we stated in March:
Note that whenever this tax applies to those whose holding operate in less than a perfectly competitive market, in other words to most commerce in 21st century America, the costs will likely be passed to the consumer and it would be more honest to simply enact a Value Added Tax or VAT-like Net Business Receipts Tax (which is proposed below).

Our prior testimony on the adequacy of mandates is as applicable now as it was in March, if not more so. We believe that the stock market priced in repeal and may react negatively to the prospect of guaranteed issue and community rating. The Committee ignores these predictions at their own peril. These impacts, which are outside the scope of the testimony of government witnesses, will likely negate many of the new provisions of the ACA. As we stated previously:

We will now return to the question of the adequacy of mandates. The key issue for the future of health care consolidation is the impact of pre-existing condition reforms on the market for health insurance. Mandates under the Affordable Care Act (ACA) may be inadequate to keep people from dropping insurance - and will certainly not work if the mandate is rejected altogether for constitutional reasons.

If people start dropping insurance until they get sick – which is rational given the weakness of mandates – then private health insurance will require a bailout into an effective single payer system. The only way to stop this from happening is to enact a subsidized public option for those with pre-existing conditions while repealing mandates and pre-existing condition reforms.

In the event that Congress does nothing and private sector health insurance is lost, the prospects for premium support to replace the current Medicare program is lost as well. Premium support, as proposed by Chairman Ryan, also will not work if the ACA is repealed, since without the ACA, pre-existing condition protections and insurance exchanges eliminate the guarantee to seniors necessary for reform to succeed. Meanwhile, under a public option without pre-existing condition reforms, because seniors would be in the group of those who could not normally get insurance in the private market, the premium support solution would ultimately do nothing to fix Medicare’s funding problem.

Resorting to single-payer catastrophic insurance with health savings accounts (another Republican proposal) would not work as advertised, as health care is not a normal good. People will obtain health care upon doctor recommendations, regardless of their ability to pay. Providers will then shoulder the burden of waiting for health savings account balances to accumulate – further encouraging provider consolidation. Existing trends toward provider consolidation will exacerbate these problems, because patients will lack options once they are in a network, giving funders little option other than paying up as demanded.

Shifting to more public funding of health care in response to future events is neither good nor bad. Rather, the success of such funding depends upon its adequacy and its impact on the quality of care – with inadequate funding and quality being related. For example, Medicare provider cuts under current law have been suspended for over a decade, the consequence of which is adequate care. By way of comparison, Medicaid provider cuts have been strictly enforced, which has caused most providers to no longer see Medicaid patients, driving them to hospital emergency rooms and free clinics with long waiting periods to get care.

Ultimately, fixing health care reform will require more funding, probably some kind of employer payroll or net business receipts tax – which would also fund the shortfall in Medicare and Medicaid (and take over most of their public revenue funding). We will now move to an analysis of funding options and their impact on patient care and cost control.

The committee well understands the ins and outs of increasing the payroll tax, so (we) will confine (our) remarks to a fuller explanation of Net Business Receipts Taxes (NBRT). Its base is similar to a Value Added Tax (VAT), but not identical.

Unlike a VAT, an NBRT would not be visible on receipts and should not be zero rated at the border – nor should it be applied to imports. While both collect from consumers, the unit of analysis for the NBRT should be the business rather than the transaction. As such, its application should be universal – covering both public companies who currently file business income taxes and private companies who currently file their business expenses on individual returns.

The key difference between the two taxes is that the NBRT should be the vehicle for distributing tax benefits for families, particularly the Child Tax Credit, the Dependent Care Credit and the Health Insurance Exclusion, as well as any recently enacted credits or subsidies under the ACA. In the event the ACA is reformed, any additional subsidies or taxes should be taken against this tax (to pay for a public option or provide for catastrophic care and Health Savings Accounts and/or Flexible Spending Accounts).

If cost savings under an NBRT, allow companies to offer services privately to both employees and retirees in exchange for a substantial tax benefit. Employers who fund catastrophic care would get an even higher benefit, with the proviso that any care so provided be superior to the care available through Medicaid. Making employers responsible for most costs and for all cost savings allows them to use some market power to get lower rates, but no so much that the free market is destroyed. The ability to exercise market power, with a requirement that services provided in lieu of public services be superior, will improve the quality of patient care.

This proposal is probably the most promising way to decrease health care costs from their current upward spiral – as employers who would be financially responsible for this care through taxes would have a real incentive to limit spending in a way that individual taxpayers simply do not have the means or incentive to exercise. While not all employers would participate, those who do would dramatically alter the market. In addition, a kind of beneficiary exchange could be established so that participating employers might trade credits for the funding of former employees who retired elsewhere, so that no one must pay unduly for the medical costs of workers who spent the majority of their careers in the service of other employers.

Employer provided health care will also reverse the trend toward market consolidation among providers. The extent to which firms hire doctors as staff and seek provider relationships with providers of hospital and specialty care is the extent to which the forces of consolidation are overcome by buyers with enough market power to insist on alternatives, with better care among the criteria for provider selection.

The NBRT would replace disability insurance, hospital insurance, the corporate income tax, business income taxation through the personal income tax and the mid range of personal income tax collection, effectively lowering personal income taxes by 25% in most brackets. Note that collection of this tax would lead to a reduction of gross wages, but not necessarily net wages – although larger families would receive a large wage bump, while wealthier families and childless families would likely receive a somewhat lower net wage due to loss of some tax subsidies and because reductions in income to make up for an increased tax benefit for families will likely be skewed to higher incomes. For this reason, a higher minimum wage is necessary so that lower wage workers are compensated with more than just their child tax benefits.

Thank you for the opportunity to address the committee. We are, of course, available for direct testimony or to answer questions by members and staff.