The House of Representatives Tri-Committee on July 14 released a health reform bill. Preliminary estimates of its cost and coverage implications look encouraging, if not perfect: providing coverage for more than two-thirds of the uninsured at a cost of less than $1 trillion over 10 years.
While the bill contains dozens of moving parts that will inspire heated debate, one of the most controversial aspects will surely be the financing of reform. The House bill suggests covering half of this $1 trillion price tag through a new surcharge on very high incomes. Specifically, a surcharge of 1% of incomes in the $350-500,000 range, 1.5% of incomes between $500,000 and $1 million, and 5.4% of incomes over a million dollars would be earmarked for health reform. Given that this will be a politically contentious funding source, it’s worth putting some of these numbers into perspective.
Economists Thomas Piketty (Paris School of Economics) and Emmanuel Saez (University of California, Berkeley) are the go-to sources on growth in very high incomes in recent decades. Their latest data show income growth for the highest 1.0%, 0.5%, and 0.1% of American households through 2006. The income thresholds for these groups are roughly $330,000, $480,000, and $1,400,000 – not perfectly aligned to the cut-offs for the new proposed surcharge, but close enough to give us a sense of the burden such a tax surcharge would place on these households.
Since 1979, yearly income growth for the highest earning 1.0%, 0.5%, and 0.1% of households has averaged over 2%, 3%, and 5%, respectively. It’s worth noting that this is about 40 to 80 times faster than incomes grew for the bottom 90% over this same time period.
Given these growth rates, any income losses incurred by these groups because of the new tax would be made up in a matter of months. If these surcharges had been introduced in the beginning of 2005, then the richest 1.0%, 0.5%, and 0.1% of households would need to have waited all of an extra one, three and nine months respectively to achieve the income levels they otherwise would have reached by the beginning of 2006. After this, their incomes would have continued to rise at a pace far exceeding what the bottom 90% of all households saw.
For the all the resistance that is certain to arise over this proposed surcharge, what is essentially being asked is for the top 1% of incomes and above to delay a pay raise for somewhere between 1 to 9 months. Given that 80% of the private sector workforce has seen no raise at all since December of last year, it seems hard to make the case that the nation’s richest households cannot give up a few monthly raises of their own if it can make a serious dent in paying for fundamental health reform.