By Jonathan Starr
The article “Funding for health care law next big battle” by professor Robert Reich makes the case that funding universal health insurance through taxes is likely to be better accepted than funding it through mandating individual policy purchases. But the article does not make the case that using FICA-style payroll taxes (i.e. like Social Security and Medicare taxes) would be preferable to using progressive income taxes to fund single-payer health insurance. And there are many reasons why the latter would be much better.
For entitlement programs like Social Security and Medicare, there may be some psychological advantage in designating a specific tax that appears separately on paycheck stubs and W-2 statements. This is because people, during their working years, tend to see these as programs for which they pay now in order to receive specific benefits in the future. Making the mental connection across time between the payments now for benefits later may be enhanced by having a designated associated tax, visible in writing.
But this would not be necessary for universal single-payer health insurance. Upon implementation, universal health insurance coverage would be part of the panoply of government services and benefits that everyone would receive at all times. As such, there would be no need for some written artifice to calm the public psyche.
After all, no one now needs to see on their paystub what portion of their income taxes goes to fire and police protection, water quality, food inspection, national defense, etc. That is because people can see every day that they are deriving the same benefits as everyone else; they do not need written proof that they are entitled to them. The same would be true of universal single-payer health insurance. It would be another such benefit to which citizens would know they have access every day, without anything about it needing to appear on their tax-related documents.
Meanwhile, progressive income taxes, scaled by ability to pay, would be a far more fair and equitable way to fund single-payer health insurance than FICA-style payroll taxes. That is why countries with single-payer systems now, like Canada, have chosen to fund them with progressive income taxes.
The Social Security payroll tax in particular is very regressive, since it applies only to earned income (i.e. wages and salaries), and only up to a certain cap level. Unearned income (e.g. capital gains, dividends, interest), which accrues overwhelmingly to wealthy people, is entirely exempt from both Social Security and Medicare taxes.
And the employer portion of FICA payroll taxes is very inequitably distributed as well, and in a way that discourages hiring and employment, and even threatens business viability. In accordance with the principle of taxing by ability to pay, business taxes should be based on level of profits. But instead, employer FICA taxes are applied by number of employees, regardless of the level of profitability of the business. So, for example, a barely surviving company that employs many people will pay much higher FICA payroll taxes than a highly profitable business with few employees. Essentially, these are substantial taxes on hiring, strongly encouraging businesses to make do with as few employees as possible, and making it much harder for labor-intensive businesses to survive at all.
In FDR’s famous “Four Freedoms” speech, he said, “The principle of tax payments in accordance with ability to pay should be constantly before our eyes to guide our legislation.” Progressive income taxes, scaled by ability to pay, comply with FDR’s principle, while regressive and inequitable FICA-style payroll taxes do not. The implementation of universal single-payer health insurance, available to everyone immediately and at all times, would eliminate the perceived need to document eligibility for benefits later based on payments made now. As such, equitably applied progressive income taxes are the better way to fund single-payer health insurance.
Jonathan Starr resides in California.