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Go Home How Many Lives Does the Public Option Have?

THE TREATMENT FEBRUARY 18, 2010

How Many Lives Does the Public Option Have?

BY JONATHAN COHN

I'm a longtime, enthusiastic fan of the public option. And I am really nervous about its latest rise from the grave.

As you may recall, the public option died in December, after Senate Majority Leader Harry Reid dropped it from his reform bill in order to secure the final votes necessary for a filibuster-proof, 60-member majority. It was actually the second or third time it had died, depending on how you count, but this time it seemed dead for good.

But in one of the many perverse and unexpected twists of this whole saga, reform's near-death experience after the Massachusetts Senate race has brought the public option back to life yet again. Now that the Senate is expected to vote on a series of final amendments to the reform bill using the reconciliation process, in which just a simple majority of 50-plus-one can pass a bill, progressives are pushing the Democrats to include a public option as part of that package.

For the last few weeks, groups such as the Progressive Change Campaign Committee have been waging a grassroots campaign--circulating petitions, organizing calls to Congress, and keeping a whip count. And it didn't seem to be making huge headway early on. The only senators to sign on were liberal stalwarts (like Sherrod Brown and Bernie Sanders) and members worried about tenuous liberal support for their reelection campaigns (like Michael Bennet and Kirsten Gillinbrand).

But on Thursday, the effort picked up support from an unexpected source, one with much bigger legislative clout: Charles Schumer. The petition drive has just 18 senators, even with Schumer. But suddenly the possibility of getting others seems more plausible.

And that's a great thing, in theory. The political the arguments for including a public option are, if anything, even stronger than they were before. Polls indicate that the public doesn't like the health care reform package, or at least what they know about it. But polls also indicate that the public likes the public option. Adding it would, in all likelihood, make the package itself more popular. It would also reenergize liberal activists, many of whom have grown disillusioned with reform's many compromises.

The policy logic remains compelling, too. The recent news of huge rate hikes for individual policies in California makes clear the need for greater cost control and more secure health insurance options. Reform with a public option would be do a better job on both counts.

But is it really possible to pass the public option? That's where I become skeptical. The theory behind this push is that getting 50 votes for a public option is possible because Reid had 58 votes for his bill before Senator Joe Lieberman demanded removal of the public option. But that was in December, before Scott Brown won Ted Kennedy's old Senate seat and the Democrats went into their political tailspin. Since that time, Democrats--particularly more conservative ones--have gotten very skittish.

At this point, it's going to take a herculean effort by President Obama and the leadership to secure fifty votes even for a modest reconciliation bill, one that merely fixes some of the more egregious flaws in the bill the Senate finally passed. Adding a public option--something more conservative Democrats never liked in the first place--will make that task a lot harder. Here's how one Senate leadership aide put it to me on Thursday, following the news about Schumer:

Despite the flurry of press reports, nothing has changed over the last couple of days, except that maybe there are less votes for the public option that there were a few months ago.

Keep in mind, too, that the prospects for a public option aren't much brighter in the House. That chamber approved a public option in November, when it passed its version of health care reform. But that doesn't mean it would do the same thing today. The Massachusetts election scared a lot of House members, too. And, like Reid, House Speaker Nancy Pelosi's toughest task will likely be corralling more conservative Democrats, most of whom never loved the public option in the first place.

It's impossible to be sure about these things, of course. If Obama, Reid, and Pelosi made it their mission in life to pass a public option--and if progressives could organize with the sort of intensity their tea-partying counterparts on the right do--it could all work out.

But, as Ezra Klein noted today, by making the public option part of the conversation again "you're also increasing internal dissension and adding unpredictability into a process that's collapsed into chaos already." If you think--as I do--that reform would constitute a monumental achievement, even without the public option, that's a huge risk to take.

So, yes, adding a public option could produce an even better reform bill. It could also produce no bill at all.

Follow Jonathan Cohn on Twitter: @jcohntnr

SHARE YOUR THOUGHTS

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85 comments

I think the Massachusetts vote wasn't as much a conservative backlash as a disillusionment with the Dems. Bringing back the public option may make passing a reform bill more difficult in the short run. In the long run, if some Senate/House version of reform passes without the a sound public option, the Dems are in trouble - we all are. We'll still be spending twice what we should on health care (if many other countries are a guide) and we'll be mandated into purchasing expensive policies that are increasingly underinsurance. The Dems are seen rightly as not being able to stand up to for profit insurance and big pharma to assert the good of the many, especially in containing costs. Single payer, a robust public option, and a Medicare buy-in have been frozen out, whittled away, or dropped. These are the most effective cost containment proposals. This has been in part due to conservative Dems, but more fundamentally because they all posed a real threat to corporate interests. If the Dems can'd counterbalance corporate interests they will continue to lose a huge part of their base. It's risky either way for the Dems; riskier, I'd say, not to include a robust public option.

- bsemple

February 19, 2010 at 2:14am

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Spend time with a bunch of 12 year old boys (as I have coaching a 12u travel baseball team), and you will learn the folly of relying on the minds of the unfocused to express a definitive choice. Lunch at the deli counter in Publix, for example. If we were to let them decide what they want for lunch, we would still be standing at the counter as they changed their minds again and again. So many choices, so little focus. And so it goes with the public and health care reform. Sometimes the adults have to take the reins and make the choice for them. Otherwise, we will continue standing at the counter as they change their minds again and again.

- raylward

February 19, 2010 at 7:56am

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Your so right raylward. You're analogy is right-on. The adults are saying for lunch have ketchup and french fries. A majority of dumb-a***d boys are saying how 'bout some spinach and chicken? You, as the responsible adult, need shut them up pdq and make sure that they stick to your recommended diet.

- gdbittner

February 19, 2010 at 9:40am

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You guys are getting played again. The public option has never been and never will be economically feasible. You can have the public option when the entire country is ready to pay EU style taxes, which means the poor, middle class and upper middle class start paying huge taxes just like the population of EU. Without that, however, theres no money for this. There is a group in congress that bring this up from time to time to appease the far left. That it. They want to show they are trying. They want you to believe that some other force is stopping this. Think about it: If it was really possible to do more with less, wouldnt everyone in congress be all over this? It makes no sense that they are not all over this UNLESS you ack that public option costs a fortune. And then the behavior of congress makes perfect sense.

- SeattleEngineer

February 19, 2010 at 10:01am

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I think this is a dangerous distraction -- it's passing the senate bill and improving it's financing in reconciliation or nothing (well, much, much more modest).

- Lymon1

February 19, 2010 at 10:16am

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Thrilling, I'll admit.

- WandreyCer

February 19, 2010 at 10:21am

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Should we pay for health care with European style taxes or continue with trying to rely on for profit investor owned insurance companies, tax breaks, high out of pocket expenses, Medicare, Medicaid, VA, FEHBP, workman's comp, auto insurance, medically driven bankruptcies and foreclosures, and many of us uninsured and underinsured? They cover everyone, spend on average half of what we do, and have overall better outcomes. I say let's pay taxes.

- bsemple

February 19, 2010 at 10:22am

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Monopolies are bad for the consumer. That's why we have anti-trust laws. The worst kind of monopoly is a government monopoly. Do a thought experiment. Suppose that there were only one restaurant chain, and that it were owned by the federal government. Going out to eat wouldn't be much fun, would it? Suppose that there only one automobile company, owned by the feds. The cars would be real clunkers. Substitute any good or service and you get the same result. Competition, of which there is too little in American medical care today, is the mother of excellence. In the long run it is the only way to control costs and enable innovation.

- bulbman1066

February 19, 2010 at 10:31am

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Health care is a public good. Competition, at least without single payer, isn't the answer. Adam Smith and Ricardo knew that-- even if many tnr readers don't and don't seem to have a clue as to how much better and cost-efficient are health care systems of some 20-30 other countries (including France and Canada).

- gdbittner

February 19, 2010 at 10:55am

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A good summary of why current legislation will do little/nothng to stop premium increases. http://www.slate.com/id/2245236/pagenum/all/#p2

- SeattleEngineer

February 19, 2010 at 11:02am

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gdbittner, facts and reality are meaningless to these ideologues. The US spending 16% of its GDP on healthcare, having millions un and underinsured, and being at 38 in health care outcomes proves we are number 1, because, you know, it is US so it must be number 1. Hey bulbman, do a thought experiment, imagine if the US contracted out all of its military to private companies, with soldiers hired and fired like Walmart workers. This is about the stupidest idea there is, the US military is the finest fighting force in the history of the world, and it got that way by being a monopoly. Why do you hate the American military so much that you were to mock it so? Go back to Russia, you Nazi. (ha, just channeling a tea bagger) A huge amount of medical innovation occurs in Universities, it has dick all to do with the private market. Do some research, most Nobel Prize laureates are members of Faculties at Universities, and this is in pretty much every field, not just medicine. If Competition is the mother of all excellence, who was Albert Einstein's competitor? Or Mozart? Or Da Vinci? Genius is the mother of all excellence with God being the father.

- blackton

February 19, 2010 at 11:19am

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seattle: For the roughly 60 percent of people purchasing insurance on the exchanges who qualified for the subsidy, the cost of premiums would end up 56 percent to 59 percent below what they are today, according to CBO. The HHS memo also fails to mention the House bill's public option. Creating a government health insurance plan that would compete directly with private insurers is the surest way to curb the rise in private health insurance premiums. Why would you like to a page that contradicts what you say? Timothy Noah is for health care reform.

- blackton

February 19, 2010 at 11:23am

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Why would we need to pay massively higher taxes? The economies of scale in the U.S. are so much more advantageous than in almost any other advanced nation (Germany might come close, but not that close) that we should be able to do reasonable basic coverage for everyone. We have 300 million people, only a small percentage of whom are receiving expensive medical treatment at any given moment. Even in for-profit car insurance, a company that's insuring 20 people and paying out to six has to be doing better than a company that's insuring 10 people and paying out to three. It's ludicrous to suggest that the company that's insuring the larger number is doing "worse" because it's making more payouts. More people are paying premiums, too. None of the free-market-only folks have ever been able to tell me why universal coverage wouldn't work well here -- except that they don't like it because they don't like government, which isn't really an argument.

- ironyroad

February 19, 2010 at 11:36am

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seattle is confused again about his economics, treating single-payer as if its entire outlay were a net increase in the provision of goods and services. The overwhelming portion of it would be paying for the goods and services we already use, but at a lower rate, better control over consumption, and without the enormous piece raked in by health insurance companies almost all of which is a waste and drain on the system. Single-payer is not a case of government monopoly, but government monopsony, and we are on the side that gets the benefit of the monopsony power. The losers are medical providers who provide useless services in too many cases and are over-compensated in many other cases. Those two phenomena together account for most of our excess health care expense. The same thing as single-payer could be accomplished with private administrators if the government were to mandate the minimums to be paid for all goods and services and the indications according to which they would be paid. Combined with mandated insurance and mandated coverge for all comers, this would suffice to get medical insurers out of the business of making money by managing risk, not our risk but their own risk. They would be paid for their administrative efficiency, not for gaming the system by witholding coverage and payment as they do now. In a best case, the mandatory minimums would become de facto maximums, and, voila, we would have achieved cost control. If not, then we would have to face the necessity of enforcing the government specified payments as the minimum and maximum. This would not be a surprising outcome as regulation of price by supply and demand requires rationing of care by willingness and ability to pay -- which is antithetical to the concept of risk spreading through health insurance. It is not possible to have it both ways at the same time -- a market solution and risk spreading. If we do not want to allocate care based on means to pay, then we have to control prices so that care is allocated on the basis we want.

- roidubouloi

February 19, 2010 at 12:56pm

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Blackton, you are on fire man! Tell it.

- WandreyCer

February 19, 2010 at 1:03pm

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From where does this concern that a public option in the US will amount to a government monopoly? I am only aware of two countries with UHC where the better off do not tend to purchase additional private insurance (Taiwan and France). This is a testament to the general satisfaction with these countries' UHC systems. Most everywhere else that I am familiar with (Australia, Canada, Germany, UK, New Zealand etc.) many people can and do buy supplementary private insurance. What the private insurers offer varies with country obviously, but it spans the spectrum from a complete replacement of the government system replete with private doctors and hospitals (with attendant raised incentives to superior quality care) to simply filling in some of the gaps that the public system doesn't offer (mostly treatments that the government decides are too expensive, lack efficacy or even evidence of efficacy). Who seriously thinks that we won't have private insurers still competing with even UHC in the US, let alone a competition-increasing limited public option?

- Nari224

February 19, 2010 at 2:12pm

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In a single, not-for-profit system, we have providers competing for business - may the best quality and service win. What we don't have is for-profit insurance companies competing with each other to collect premiums and avoid paying claims. Let's have competition that supports good health care and get rid of what doesn't.

- bsemple

February 19, 2010 at 2:35pm

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Deregulate the insurance market and allow for the purchase of insurance across state lines and the price of insurance will fall. If an insurance company avoids paying claims the solution is to avoid doing business with that company. It works with automobile insurance (and just about everything else that is bought and sold). Why not with medical insurance? The fact is that the high cost of medical care has little to do with greedy insurance companies. The biggest driver of cost is the growth of high tech medicine since 1975. High tech or premium medicine is a good thing, but it comes at a price. One problem is that expensive procedures are often used when they aren't really needed. How to deal with that is not an easy question. Part of the answer is to avoid paying providers by procedure, instead paying by results - "outcome based" medicine. Another part of the answer is for doctors and patients to have access to a database on the costs versus benefits of various procedures. The second biggest factor driving up costs is that the majority of people don't pay directly for insurance, but instead the government pays or the employer pays. Since there is a third party payer people pay less attention to cost than they would if they were paying directly. The solution is for people to buy their own coverage. What about people who can't afford the premiums? A solution would be for everyone to receive a tax credit to pay for medical insurance. This would amount to a payment to low income people and a tax deduction for the half of the population subject to income tax. An important benefit of this approach would be to sever insurance coverage from employment, making insurance portable across job changes. It would also make it easier to hire workers, which would reduce unemployment. Contrary to what you may have read or heard in the media, there is no evidence that Americans get medical care that is inferior to that in any other country. Studies have in fact shown just the contrary. It is true that Americans are on average less healthy than some other populations on some measures. But guess what? Medical care is only one of several factors determining health, and it's not necessarily the most important one.

- bulbman1066

February 20, 2010 at 12:20am

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ironyroad, economies of scale dont' buy you anything beyond a certain point. A few million people easily meets that threshold. You think if Finland added another 5M people to their insurance that costs would keep going down? No. Places like Cali, with their 10+ million population, are already experiencing economies of scale. If we replicate California's health care situation nationwide it will still suck. Statistically, once you have a hundreds of thousands, or perhaps a few million people in the system , more people doesn't change your cost structure at all.

- seattleeng

February 20, 2010 at 12:52am

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It seems to me, seattle, that if Finland added 5M more people of average good health to their pool, they would have a better cost structure, as they would be taking in much more in premiums than they would be losing in payouts. You imply that is wrong, but you don't explain why it's wrong. Economies of scale are surely what guaranteed American economic success in the 20th century. Our internal market was so big that many companies could thrive without even thinking of abroad.

- ironyroad

February 20, 2010 at 1:17am

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blackton, the house bill requries those at 133% of federal poverty level ($15K for single adult, and $29K for a family of 4) to pay 1.5% toward their mandary health care. The subsidy erodes and the mandate requirement increases as you hit 400% of FPL ($45K for single, $87K for a family of 4) such that someone at 400% FPL is paying 12% for the mandatory coverage. So, a guy living alone making $50K/year will pay $6000 for coverage. A family of 4 making $88K will pay $10,600 for coverage. Remember, their employer only needs to pay $750 in "penalties" to drop the worker from coverage if they already have it. You can bet employers will drop people all over the place. The senate bill require those at 100% of FPL ($22K for a family of 4) to pay 2% of AGI towards coverage. Those at 300% of FPL will pay 9.8%. If you do the math, this means the effective marginal tax rate on these low to mid-high income earners is 60-80%. Here's the house bill: http://docs.house.gov/rules/health/111_ahcaa.pdf See starting page 251 for the info covered above. You are a fool if you think this isn't coming with massive taxes for poor and middle class. You are fool if you think the EU poor and middle class isn't paying massive taxes for their coverage. Of course, this is what I've been saying all along.

- seattleeng

February 20, 2010 at 1:19am

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Ironyroad, people get sick as certain rates, and doctors express that as incidences per 100,000 people usually. For example, in the US and over all races, women experience breast cancer at the rate of 124 women per 100,000 women. If you have 10M women in your plan, then you expect to have 12,400 women get breast cancer in a year. If you have 100M women in your plan, then you expect to have 124,000 women get breast cancer. Give or take. But the ratio is the same. Why do you expect the costs to change appreciably as we add people? Roughly half of all babies are boys. That is true whether you have 100 babies or 1M babies, right? Beyond a sample size of a few hundred, you just don't see things change that much. http://seer.cancer.gov/statfacts/html/breast.html

- seattleeng

February 20, 2010 at 1:26am

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Careful with that "fool" moniker, seattle. You are on thin ice. You seem to think that having to pay for health insurance that includes a hefty chunk of profit for health insurers obtained by them mostly by refusing care and coverage so that they can collect premiums and not pay claims is not an economic burden, but that paying taxes instead of premiums, at a lower rate, for coverage that actually covers you when you are sick, pays your legitimate claims, and doesn't overpay for services driving up your premiums is. Strange belief. One might even say foolish. We are talking here only about reorganizing the method of financing health care, not about the aggregate cost, because the Republicans refuse to consider anything that could have a major impact on the cost structure. Yes, the wealthy will pay more because the reform plan includes subsidies for the poor. And if you refuse, as the Republicans do, to countenance anything to control costs, those subsidies will be higher than they should be. The alternative is to continue to deny health coverage to people who cannot afford it, which, of course, the Republicans also want to do. You do not distinguish between taxes that are pure transfers from one group to another, such as FICA and Medicare, and taxes that substitute for a cost otherwise incurred. So, like I said, be careful who you are calling a fool. If you were truly concerned about the prospective burden of partially publicly financed health care, you would be advocating, at the minimum, the public option, or some version of single-payer be it purely public or a public-private hybrid. As you do not, one can only conclude that your "tax-moaning" reflects nothing more than that you want health care continue to be allocated by the willingness and ability to pay and to hell with the rest. Why not just say so instead of hiding behind these spurious fiscal arguments?

- roidubouloi

February 20, 2010 at 9:28am

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Why is anyone even discussing the public option? There's no chance whatsoever that it could happen.

- dtohmatsu

February 20, 2010 at 10:51am

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Roid, for every dollar insurers take in in premiums, what % do you think they pay out?

- seattleeng

February 20, 2010 at 10:53am

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Test post.

- bulbman1066

February 20, 2010 at 3:46pm

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The profit rate of health insurance companies is 3.3%. Health insurance is the 86th most profitable industry in the company.

- bulbman1066

February 20, 2010 at 3:48pm

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"Remember, their employer only needs to pay $750 in "penalties" to drop the worker from coverage if they already have it. You can bet employers will drop people all over the place." Yes, because we all know no employers are doing that now for nothing (oh wait, they are, employer provided insurance is at an all time low...hmmm) Employer provided health insurance is one of the stupidest concepts there is (and only came about because of WW2, when the country was busy with more important matters, like surviving) Only an idiot is in favor of this. Why anyone would want to saddle any employer with this kind of time suck and resource suck is beyond me, but this is Republicanism for you.

- blackton

February 20, 2010 at 4:06pm

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Of course employer provided health insurance is stupid. It is in the Democratic bill, along with a lot of other stupidities. The Republican proposals all aim at getting rid of employer provided insurance, or at least ending its tax subsidies.

- bulbman1066

February 20, 2010 at 4:15pm

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I just looked at Wellpoint as an example. Its operating margin was 5.6% in 2008, down from more than 9% the prior two years. 2009 it was more than 11%. That is percent of revenues, not ROI. The combination of its administrative costs and profits is typically about 25% of revenues. Do you think that we need an insurance system that costs us 25% of the tab for healthcare, is ineffectual at controlling medical costs other than by denying care, and makes its profits by denying care and coverage? As far as this being the 86th most profitable industry, profitability is not measured by percent of revenues but by return on net assets. In the case of Wellpoint, its tangible net worth is about zero, most of its net worth being in goodwill and intangibles that result for acquisitions. Its nearly $5 billion of EBIT is at least a couple of times its tangible net worth. That is a pretty fancy profit. As far as the percentage of premiums that insurers pay out, it ought to be about 98%, not 75%, because it is a pass-through intermediary. It is the fact that such a high percentage of the premium stream sticks to the insurer instead of paying for medical care that is the problem. Combine this with the inability of a private insurance system to manage care fairly when every dollar it saves on care ends up in its pocket and you have a quick description of exactly why US healthcare is a disaster. The insurance system IS the problem

- roidubouloi

February 20, 2010 at 4:37pm

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Seattle, in an article discussing the relative advantages and disadvantages of state vs. market options for providing health care (a UK focus), I came across the following sentence "The NHS [National Health Service] can exploit huge economies of scale and therefore provide health services for millions of people at an efficient cost – these scale economies include the benefits of specialization and significant buying power in the purchasing of drugs from pharmaceutical companies" Now you may disagree with this -- and I'm sure you do -- but what strikes me is that the authors believe there is indeed such a thing as economies of scale, and that these are an important factor in weighing up the cases for market or government systems. And if the UK with its 60M+ population has "huge" economies of scale to offer . . .

- ironyroad

February 20, 2010 at 4:38pm

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There are no Republican proposals, bulbman. They have relentlessly refused to make any sort of comprehensive proposal. The want to get rid of employer provided insurance in exchange for essentially nothing. That's reform?

- roidubouloi

February 20, 2010 at 4:40pm

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Roid, since you brought it up, let's look at wellpoint in more detail. From the release below, they insure 34M people. Not including the sale of a business, they earned a net profit of $2.9B providing insurance for those 34M people. What is $2.9B divided by 34M? It's $85. In other words, they EARNED a profit of $85 per customer for the year. And for that, they had nurses on staff that could answer health questions if you called. They had people that could explain to you the success rates of bypass operation at hospital X versus hospital Y. They kept fraud to levels far below what Medicare experiences. Now, explain to me how the equation changes if they earn zero profit? How do health care costs go down if wellpoint was turned into a not-for-profit? The equation doesn't change at all. The insurance companies are not the boogeymen here. http://ir.wellpoint.com/phoenix.zhtml?c=130104&p=irol-newsArticle_financial_invest&t=Regular&id=1379438&

- seattleeng

February 20, 2010 at 5:24pm

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ironyroad, economies of scale certainly exist, but you have hit economies of scale once you are in the millions of anything. Beyond a certain point, costs don't keep coming down. Krugman makes the point in the commentary linked below where he basically says that California, with their population of 800K people in blue cross has reached scale. Taking it beyond that doesn't get you any further reductions. His words: "But California is already a huge market, with much more insurance competition than in other states; unfortunately, insurers compete mainly by trying to excel in the art of denying coverage to those who need it most. And competition hasn’t averted a death spiral. So why would creating a national market make things better?" In other words, Krugman is noting that the economics wouldn't change for California in taking their 800K blue cross subscribers and enlarging it to the entire country. That's because they've reached scale. And once you reach scale, costs will not come down much more (few %). Look at what Walmart has done for pill costs. They have reached scale. They buy a billion statin pills per year. If someone wants to buy 10B per year, the costs aren't going to go down any more. If you are a hospital, and you have 5 heart surgeons doing 300 bypasses per year each and they are maxed out, then the only way to do more bypasses is to hire another surgeon and build another operating room (costs go up) OR come up with a new technique that allows each doctor to do each bypass faster. Now, if you are a hospital in the country, and you have a doctor that is doing 10 bypass operations per year, and he's idle much of the time, then of course more operations will bring down costs. But that just doesn't happen very often. http://www.nytimes.com/2010/02/19/opinion/19krugman.html

- seattleeng

February 20, 2010 at 5:42pm

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Roi, there is no single Republican plan for health insurance refrom, but Republicans have advanced some good ideas in bills and proposals. Since nobody seems to have read it, I repeat my above post outlining some of these ideas. Deregulate the insurance market and allow for the purchase of insurance across state lines and the price of insurance will fall. If an insurance company avoids paying claims the solution is to avoid doing business with that company. It works with automobile insurance (and just about everything else that is bought and sold). Why not with medical insurance? The fact is that the high cost of medical care has little to do with greedy insurance companies. The biggest driver of cost is the growth of high tech medicine since 1975. High tech or premium medicine is a good thing, but it comes at a price. One problem is that expensive procedures are often used when they aren't really needed. How to deal with that is not an easy question. Part of the answer is to avoid paying providers by procedure, instead paying by results - "outcome based" medicine. Another part of the answer is for doctors and patients to have access to a database on the costs versus benefits of various procedures. The second biggest factor driving up costs is that the majority of people don't pay directly for insurance, but instead the government pays or the employer pays. Since there is a third party payer people pay less attention to cost than they would if they were paying directly. The solution is for people to buy their own coverage. What about people who can't afford the premiums? A solution would be for everyone to receive a tax credit to pay for medical insurance. This would amount to a payment to low income people and a tax deduction for the half of the population subject to income tax. An important benefit of this approach would be to sever insurance coverage from employment, making insurance portable across job changes. It would also make it easier to hire workers, which would reduce unemployment. Contrary to what you may have read or heard in the media, there is no evidence that Americans get medical care that is inferior to that in any other country. Studies have in fact shown just the contrary. It is true that Americans are less healthy than some other populations on some measures. But guess what. Medical care is only one of several factors determining health, and it's not necessarily the most important one.

- bulbman1066

February 20, 2010 at 6:59pm

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I'm late jumping in here because I've been e-mailing Rachel Maddow to find out just what she thinks a skimpy public option will do for us. Thanks to bsemple and gdbittner for holding the single payer fort. Seattleeng is so great at pulling up numbers, I suggest he/she look at some of the OECD stats. After paying taxes, the Europeans in single payer countries end up with more discretionary funds to spend on non-health care items such as food, rent, cars, and clothes than we do. And they get so much more "quality of life" for their taxes--child care, sick leave, early kindergarten. Moreover they aren't terrified that they are one accident or surgery away from financial ruin. Their seniors aren't counting pennies to cover the latest Medicare co-pays. The proponents of a free market health care system seem able to run all the numbers, yet in the end they come up with conclusions that defy common sense. In 2007, Nobel laureates told us the market doesn't always work. An audit of WellPoint's books wouldn't just show profits, but the monies spent on marketing, lobbying, legal fees, executive salaries--NOT ON CARE. The insurers are unnecesary but they add to the billing costs of every doctor's office, every hospital. Even the nonprofit HMOs need to be called into question. In my ststes, a "nonprofit" managed care company manages Medicaid. It has just been revealed that they cost the taxpayers more than traditional Medicaid! Rachel Maddow usually does her homework. I suggest she read posts by Kip Sullivan, JD, at PNHP.org. He explains why the public option won't get us anywhere. Sullivan cites Ron Wyden, who holds that option advocates, "with help from the media and the blogosphere, have fooled the public into thinking everyone will be eligible to buy insurance from the 'option,' and when the public finds out this isn’t true, they’re not going to be happy." As for buying insurance across state lines--There's a good post by a respected pro-markets blogger, Robert Laszewski, who points out the flaws in that proposal: State-based insurers rely on their relationships with a network of local providers. HHS Secretary Sebelius just put out her response to the California rate hikes, saying, " A Broken Health Insurance System Works for Insurance Companies – Not Families I would counter that Congress "plans to retain a Broken Health Insurance System that Works for Insurance Companies – Not Families." Go back to the drawing board. Enact HR 676!

- hmseil01

February 20, 2010 at 8:12pm

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hmseil01, you want OECD stats? A median earner family in France faces a 40.7% tax wedge. In Sweden, it's 42%. In the US, they pay 12%. If you want to jack up taxes on the middle class by 30% to get what France has, then let's talk about that. After we do that, we can pay off our debts and wallow in all the benefits it brings. But if you want to try and do that with the bottom 50% in the US shouldering 3% of the individual tax bill, then forget about it. There's not enough money there. So what do you want? Tax the crap out of the poor and middle class, just like EU? And enjoy their benefits? Or keep our tax system roughly the way it is, with the top 10% paying more than 70% of the individual tax bill, and keep the benefits roughly the same? Which do you want?

- seattleeng

February 20, 2010 at 9:38pm

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You produce the same misinformation, seattle, just on a different day. The half that pays 97% of income taxes has 87% of the income. There is plenty of money there, just not in the bottom half. Taxes are more evenly distributed in the OECD countries because income is more evenly distributed there. Plus, in the US we have regressive payroll taxes. You constantly omit payroll taxes form "the individual tax bill." That's a scam. You only want to count the taxes paid by the rich and ignore the burden on wage earners. The overall system is remarkably flat in the neighborhood of 20%. It's just that at the low-end most of that tax is payroll tax. The people getting killed are the middle class who have both income taxes and payroll taxes to pay. And that is how the tax scam is run, by making the over-taxed middle class think that any tax must land on its shoulders. With a $3.5 trillion budget, inflated by the recession, and something like $12 trillion of net national product, and with the upper half getting 90% of the income, they have around $10 trillion of income before tax. We could tax them at an average rate of 35%, tax the bottom half zero income tax and zero payroll tax, and still pay for the entire federal government with no deficit. The reason we have trouble raising sufficient revenues is that the right-wing has made it impossible to tax the people who have most of the income and the burden is too great if levied on everyone else. It is just that simple. Bulbman, you have your answer. The overhead of insurance companies together with their profits is a huge and unnecessary drain on the health care system. More insurance companies competing by denying care and coverage is not going to change that fundamental dynamic whatsoever. The only other Republican idea is tort reform. Medical malpractice direct costs, including liability and litigation expense, are 2% of aggregate medical expenditures. Look somewhere else (like the 25% getting lost in insurance companies). The reason for the high cost of care here is not high tech medicine. They have high tech medicine in France. The reason is unnecessary services and excessive incomes. Doctors in France are mostly salaried. They live very nice upper middle class lives. The do not live like royalty, but there are enough doctors to go around.

- roidubouloi

February 21, 2010 at 3:05am

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Roid, if you want the upper 50% to pay 35% tax rates, then that means the guy making $55K per year needs to pay 35% tax rate. Today he's paying about 12% effective tax rate. Are you saying you want the guy making $55K to pay an extra $13,000 in taxes each year to fund this? Previously, you argued the top 10% could fund all this. I'm glad to see you are no longer arguing that. You are learning.

- seattleeng

February 21, 2010 at 11:26am

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Roid, the overhead of insurance companies, as presented to congress is about 15%. Some are a bit better, some are a bit worse. But congress is comfortable with them around 15% overhead. In other words, when they take in a dollar, they pay out $0.85. McKinsey calculates we spend $412 per capita on administration and insurance, and they note that is six times higher than the OECD average and due largely to multi-payor. They note that other systems are around 2-3%. Relative to our $5635 per capita health care spend, this is a 7%. So, if we put a magnifying glass on the insurer, we lose about 15%. If we step back and look at the larger picture, the total gains to be had from single payor would be around 3-4%. So, you assertion that 25% is lost in insurance companies is pure fabrication. Got a source? I didn't think so. McKinsey Report (see middle of page 18): http://www.mckinsey.com/mgi/reports/pdfs/healthcare/US_healthcare_report.pdf

- seattleeng

February 21, 2010 at 11:49am

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Roid writes: "They have high tech medicine in France. The reason is unnecessary services and excessive incomes. Doctors in France are mostly salaried. They live very nice upper middle class lives." Again, more misinformation. The average takehome pay for a doctor in France is around $55,000 (link below) When we have state union employees in New Jersey making pulling down nearly $4M for 23 years of work, and a fork-lift driver at GM neting an annual salary + benefits package of $72K, and a teacher in Seattle neting a an annual salary + benefits package of $91K, you cannot be serious that you are proposing that doctors reduce their salary to solve this problem. You do know that a doctor doesn't really make any money until the age of 32 to 35, due to school...right? The average salary for a doctor in the US is about $150K. So, if you want to whack that in half, then let's also whack the teachers in half, the fork lift drivers in half, etc. It's all connected. http://www.businessweek.com/magazine/content/07_28/b4042070.htm

- seattleeng

February 21, 2010 at 11:59am

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Seattle, I can see that even though you may be an engineer, you are algebraically challenged. 10% of the population has half of the national income, not half the population. I was suggesting that the average rate on that segment should be 35%, and there is plenty of money to sustain that as an average without making someone who earns $55,000 pay 35%. Indeed, the census bureau figures show that 25% made more than $100,000 in 2006. You do know what an average rate is. don't you? I will find the 10% bracket for you, but it has to be north of $200,000 per family. It is because our income is so unevenly distributed, and our public services are so cramped, that a doctor in France can live very comfortably, send her kids to college, have full medical care, and a decent pension while making $55,000. Our hugely skewed distribution of income creates problems of all kinds. As I reported in the case of Wellpoint, the combination of overhead and profit, as a percent of revenues, is typically 25%, 15% overhead and 10% profit. You seem to think this is trivial compared to the 2-3% administrative cost of single-payer. It represents between $500 billion and $600 billion per year. Double that for a combination of excessive prices and excessive services. That's about $1.1 trillion which is between 7 and 8% of the economy, just the difference between the share of output that healthcare consumes in the US and in France. So hold the snark and do a little work. Simple algebra should suffice. As I mentioned, the trade-off for controlling costs should be that medical education is state-supported. We will not be short of doctors.

- roidubouloi

February 21, 2010 at 3:03pm

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"If we step back and look at the larger picture, the total gains to be had from single payor would be around 3-4%." I'm not an expert in any way, but the total gains to be had from single-payor in the U.S. would also include, I assume, economies of scale that would accrue to a single health-care market of 300M people (incl. children, of course)? Reduction of bureacratic costs would be possible, as the system would have a basic structure all over the country. And the great thing would be, it would include everyone -- and then one could genuinely measure our health and life-expectancy outcomes against countries with universal coverage. It's not the only solution, of course. A market-based alternative would be a private health insurance market as we have, but within a strictly regulated national framework that laid down what a basic package should contain and the appropriate premium caps, and permitted more luxurious coverage to be offered beyond that -- but all companies have to first offer the basic. A kind of basic medicare plus optional extras. Americans just don't understand that for some things to work, everyone has to be in the game.

- ironyroad

February 21, 2010 at 3:04pm

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I realize, seattle, that doctor incomes seem low to you. I am sure they do to doctors too. But they are amongst the highest paid in the US. The only reason it seems low is because we have a plutocrat class that makes a lot more, both by comparison and by distorting prices to put what used to be middle class goods out of reach.

- roidubouloi

February 21, 2010 at 3:05pm

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Quite right, irony, on both counts.

- roidubouloi

February 21, 2010 at 3:18pm

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You know, I have hired McKinsey a couple of times in my career and never had a particularly good experience. The report cited by seattle, dated December 2008, recites $1.7 trillion of healthcare spending in the US. That struck me as low given the general quotation of about 17% of the economy at that point. Should have been more in the $2.3 trillion range. Sure enough, Kaiser.edu says healthcare spending in the US surpassed $2.2 trillion in 2007, $7,421 per resident, significantly more than the $5,635 quoted by seattle a year or more later. http://www.kaiseredu.org/topics_im.asp?imID=1&parentID=61&id=358

- roidubouloi

February 21, 2010 at 4:35pm

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Roid, regarding your "plenty of money" comment...you minimally need to show how to generate $1.4T a year. This includes an annual projected $600B shortfall in the 2011-2020 budget, followed by a pay down of the $12T debt that gets us debt free after 15-20 years. And then after you've done that, you can show how to find an extra $200B/year to finance all this medical goodness. As an example, if you increase effective federal taxes taxes on... the top 1% from 23% to 57.8% avg tax rate AND the top 10% (not including top 1%) from 19% to 43.9% avg tax rate AND the top 25% (not including top 10%) from 16% to 31% avg tax rate Then you raise $1.4T annually, and you will zero the deficit in ~15 years AND close the current budget shortfall. But that means a guy making $64K sees his taxes go up $9.7K, and the guy making $108K a year sees his taxes go up $27K a year. And the guy making $388K a year sees his taxes go up $135K a year. Go ahead, propose your own mix and report the revenue it generates. Tell me what you see as optimal. You are living in fantasy land. There is not enough money here to currently close the deficit and pay down the debt in a 15 year time frame. Let alone kick off all these new entitlement programs.

- seattleeng

February 21, 2010 at 7:55pm

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You do know Chelsea Clinton went to work at McKinsey, so somehow she and her well connected parents didn't agree with your view of the organization. We've used them a lot too, very expensive, but solid. The section I referred you to noted they are 2003 figures. And the point remains valid: Administration costs and insurance costs (including profit) were 7% of health care costs in 2003, while most other OECD countries (and medicare) are paying 2-4%. Thus, at most, we'd expect a single payor operating as a non-profit to reduce the costs by just a few %. Therefore, unless you can cite a study, your 25% assertion is a crock.

- seattleeng

February 21, 2010 at 8:20pm

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Roid says: "I realize, seattle, that doctor incomes seem low to you. I am sure they do to doctors too. But they are amongst the highest paid in the US" So let's see...a union fork lift driver at GM earns salary + benefits of $71K starting at age 18, and then at the age of 45 he's earned $1.9M in salary and benefits, and he's ready to retire in a year with nearly a full salary and lifetime of gold plated medical coverage that push his total "haul" to nearly $4M dollars. The doctor, at age 35, is $250K in debt due to medical school. At age 55, after 20 years of earning a $150K salary, has amassed $3M in salary (no benefits, since he must pay those himself from his salary). The doctor will likely work another 10 years to completely fund his retirement. Which is a better deal? And you want to further reduce the doctors salary? And let me guess, you want to increase the fork lift drivers salary. Do you want people to be doctors? They won't be doctors if the reward isn't there. It's too much work, and too much risk.

- seattleeng

February 21, 2010 at 8:29pm

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Irony writes: "I assume, economies of scale that would accrue to a single health-care market of 300M people" Ask yourself this, Irony...Finland has a population of 5M...Sweden has a population of 10M...canada has a population of 33M. They all have roughly the same cost and efficiency numbers for care. One is not more exceptional than the other on costs. But the population sizes are vastly different. What magic thing would you expect to happen if Canada grew to 100M people? YOu think their costs would go down more? How much more?

- seattleeng

February 21, 2010 at 8:35pm

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Seattle, I know it is frustrating to you to begin to realize that your economic dogmas are hogwash, but stick with it man. I think you can get through it. First, on purely theoretical grounds, income cannot escape to Mars. Let us leave aside the 3-5% of national product that constitute net imports. If the government consumes $3 trillion and runs a deficit of $1 trillion, meaning its share of income is that much less than its consumption, it is necessarily the case that the private sector ran a surplus of $1 trillion. Therefore, if we taxed away the $1 trillion, the budget would be in balance and the private sector would no longer have a surplus but its consumption and investment would be absolutely unimpaired. The allocation of income within the economy is purely notional, meaning that it is adjusted with IOUs representing the difference between income and expenditure. The government took $3 trillion or purchasing power from the private sector. $2 trillion of it was in taxes; for $1 trillion, it gave back IOUs. If it had taken $3 trillion in taxes and issued no IOUs, it would make no difference EXCEPT to the extent that the spending behavior of people is influenced by their income. If in response to being taxed for the extra trillion instead of getting back some paper, the private sector cut its consumption spending, then output would have been less. However, at the high end, spending is very inelastic. On the other hand, borrowing can have negative effects on interest rates that also effect spending behavior. These are second-order effects in that they have to do with behavior. On a static basis, it is nonsensical to argue that there is not enough income in the economy to pay for the government because, by definition, we already generated sufficient income = output to pay for the government plus what the private sector spent. We just have a mis-match between each sector’s expenditures and its paper share of income. Now, as to where the income lands, in 2009 we had $13 trillion of private net national product, that is gross domestic product less depreciation in the private sector. All of this is income to the public in the first instance because the government only gets its share of income by taxation. Total government expenditures were $3 trillion. Private consumption and net investment were $10.5 trillion. The difference, the additional half trillion, are net imports. If government took in only $2 trillion of taxes, the effective average tax rate is only about 15%. If it were not running a deficit and took in $3 trillion of taxes, the average tax rate would only be 23%. Why does it appear to you that we don’t have enough income to generate the tax revenues we need? That’s silly. In 2006, the last year for which we have tax figures, the private net national product was about $12.2 trillion. But the sum of corporate profits of $1.6 trillion and total adjusted gross income of $8.1 trillion, as appears on tax returns, was only $9.7 trillion. So, right off the bat, $2.5 trillion of income is not being included in the income tax definition of income. $500 billion is the employer share of payroll taxes. That leaves $2 trillion unaccounted for in taxable income. Since wage earners only have their wages, it is a safe bet that the entire $2 trillion belongs to the upper half of income earners. In fact, since only income from capital gets excluded from AGI in a variety of ways, it is a fairly safe bet that almost all of the missing $2 trillion belongs to the top 10% which would give them, in 2006, $5.8 trillion out of the $12.2 trillion of net national income. That’s close enough to the 50% of national income now being reported as the share of the top 10%. The top 10% produced 13.6 million tax returns, an average economic income of $426,000 per return, although only $3.8 trillion was reported as AGI, a mere $283,000 average. The average AGI for the bottom half was $15,000, a ratio of about 20:1 on reported AGI and 38:1 on economic income (not including corporate income!). Add to the $5.8 trillion the $1.6 trillion of corporate income and the $500 billion of employer payroll taxes (since we are re-allocating taxes from scratch). That is a pot of $7.9 trillion. The difference between that and the $12.2 trillion is exactly the $4.3 trillion of reported AGI of the bottom 90% of earners. If the $7.9 trillion were taxed at an average rate of 35%, we would have more than $2.7 trillion of revenues. The second tier of 40% of earners (down to a percentile income floor of $31,000) has $3.3 of AGI. A tax rate of only 7% suffices to close the budget gap and the bottom half of earners then pays no taxes at all. And get this! The 7% would represent a tax cut to them as these people are already paying income taxes of 8% plus direct payroll taxes of 7%. The after-tax income of the top 10% would be an average, mind you, of $277,000, 18 times that of the earners in the bottom half. But we could make the taxes in the top tier somewhat progressive too. A surcharge of 8% on the $1.8 trillion of reported AGI of the top 1%, with an average AGI of $1.3 million per return, would produce $140 billion. Then the core rate for the top 10% falls to 33% and the top 1% would pay an average of 41%. There is no doubt room to make the system even more progressive at the top end as there are people making tens of millions in there who could afford to pay an average of 50% and never even notice the difference. So, what don’t you get? How is it possible that we cannot raise $3 trillion of taxes on $12.2 trillion of income, assuming, that is, that the tax system had not been designed by Reaganite fantasists? All we need is a sound tax system instead of the regressive Swiss cheese we have now. We don’t need to pay down the debt in 15 years. If it stops growing, we will outgrow it as it is in nominal terms and depreciates with time. But it would be healthy if we would start paying it down by reorganizing the tax system for structural deficits once the recession is over. You think McKinsey is solid? The first page of their report has a whopping error on the magnitude of health care costs in this country. How and why should we take anything else in there seriously? Even if we gave the 15% who are uninsured a full ride at the currently inflated rate of costs, that is $300 billion a year. If we means-tested the other entitlements, we could afford that without a hiccough. That’s how. The re-establishment of progressivity to our income and payroll tax system combined with means-testing of entitlements would solve our fiscal problems, and fast. Then we could get on with the serous business of growing the economy. Oh, and ask all your doctor friends how many of them would like to be forklift operators at GM because it is a "better deal."

- roidubouloi

February 21, 2010 at 11:48pm

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I believe that the tax brackets needed to support the above structure would be approximately: 0 for the first $31,000, 10% for $31,000 to $108,000, and 38% thereafter, but there would be no payroll taxes. Someone earning $500,000 would have an average rate of 31%. At $1 million of income, the average rate is close to 35%. Hardly tragic, and sufficiently close to the nominal rates today to make it obvious that the biggest problem with our income tax structure is that too much income escapes taxation altogether.

- roidubouloi

February 22, 2010 at 8:47am

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OK, good, real numbers. Let's try to reconcile our views. You have some flawed assumptions. Tell me if you agree with this: The top 1% have a collective AGI of $1.8T. The top 10% (minus the top 1%) have a collective AGI of $2T. The top 25% (minus the top 10%) have a collective AGI of $2T. Combined, all earners in this country earn $8.1T. This is revealed in 160 of your xls where the top 50% earn 87% of all the money, and line 94, where the total income on the top 50% is $7.1T. The top 1%, including corp taxes and SS taxes are already paying an overall effective rate of 32.7%, including corporate taxes (since many are small business owners filing as s-corps). You propose they move to 31%? A reduction? And just to check, you are aware that the size of our federal government is around $3.5T, the states are another $1.4T, and local spending is another $1.8T. So all together our combined governments are spending $6.7T out of $15T, or about 44% of GDP. To minimally cover the deficit and pay down the debt (the $1.4T adder I noted above), we need to move to that to $8.1T out of $15T, or 54% of GDP. At 54%, our government is already larger than every other OECD country in terms of % of GDP. So, please propose some new, higher % that you'd like to see the top 25% pay that you believe will cover the current deficit AND enable new social spending. What you propose generates much less than we're getting today.

- seattleeng

February 22, 2010 at 11:36am

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roid, I agree with your prescription completely. seattle, that is for Federal taxes, not state and local ones. You want to come up with your own schemes to finance them, have at it.

- blackton

February 22, 2010 at 1:28pm

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No, seattle the top 1% is not paying an overall rate of 32.7%. The average tax rate on the top 1%, is 22.79%. Please review table 5 again. Also, as I have pointed out, the definition of adjusted gross income (AGI) from which the IRS computes the effective rate is not comprehensive. Approximately $2.5 trillion of net national income is not included in the definition of AGI and corporate profit, the tax base. Someone owns that income, and it is surely not people who earn only wages or salaries for a living because they are on a cash basis, their wages and salaries are directly reported, and they have very few means on excluding income. Finally, yes, the budget is now $3.5 trillion. I was using the 2009 budget and financing it with 2006 net national product, both to be conservative and because 2006 was the last year for which the IRS has published its tables. Leaving aside the stimulus-driven deficit, which is the very opposite of a structural deficit, the numbers would work more easily if I had used the 2009 budget and 2009 net national product which is $800 billion higher than in 2006. Overall, we are collecting about $1.5 trillion of Federal income taxes on $13 trillion of net national product. The top 10% has 50% of national income, $6.5 trillion. We need $2.5 trillion of income tax revenues for a balanced budget. That would be a 38% average rate if 100% of income taxes were paid by the top 10% and we left payroll taxes alone. I cannot make it any simpler for you than that. My preference is actually to substitute carbon taxes for payroll taxes, with a 10-year phase-in. You should also see Chait's column today on taxes and the chart in the NY Times that he links to. That chart purports to include all taxes, at every level of government, and accounts for the employer share of payroll taxes. (I doubt though that it reconciles for the $2 trillion of net national product that gets excluded from taxable income.) It shows quite clearly that our overall tax structure is essentially flat, as I have been saying, not progressive at all. If, as I suspect, that $2 trillion is not accounted for, then the overall tax system is actually regressive. That is, the rich pay a smaller share of taxes than their share of national income.

- roidubouloi

February 22, 2010 at 2:31pm

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Seattle, you might also try looking on the BEA website where there are copious tables on the national income and product accounts. Total government expenditures in the US at all levels of government are $5 trillion on a net national product of $13 trillion. Of the $5 trillion, $2 trillion are transfer payments, such as social security, where one person pays for another. The total government consumption expenditure is $3 trillion. Considering that it is the working class and the salaried who pay for almost all of the transfer payments, I just don't see what you're bitching about as far as income taxes. The total cost of government at all levels, excluding income transfers that the rich don't pay for now, could be paid for by the top 10% with an average income tax rate of 46%. The total tax burden of 38% is in fact quite flatly distributed because payroll taxes and state and local taxes are regressive. If we means-tested the social benefits, we could get those under control. The Democrats would do it in exchange for a progressive income tax and balanced budget. Comprehensive health-care coverage and cost control would be a long step in the right direction, reducing not increasing our fiscal burden. If we stopped collecting payroll taxes and collected carbon taxes instead -- increasing the cost of what we don't want, carbon emissions, and decreasing the cost of what we do want, employment -- we would have a technological revolution in energy and our economy would take off. Part of what is so frustrating about the know-nothing flat-earth right-wing is that solutions are actually within our grasp. We cannot seize them because of the perverse ideology of the right. Finally, I would point out to you that, in the case of retirees, they are going to consume a share of national output whether they have saved for it themselves or receive it from a transfer. The ultimate impact on people who work is the same either way, it is just that one way it is mediated through price and their real wages and the other way it is mediated through their nominal wage and a tax. We cannot consume the same output twice, so what retirees consume is not consumed by anyone else. And it is the labor of those who work that must generate the output to support everyone, workers, children, the disabled, and the retired regardless of the tax and pension structure.

- roidubouloi

February 22, 2010 at 2:53pm

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The non-defense Federal expenditure budget, meaning everything it spends other than transfer payments and defense, is $365 billion. The notion that we can cut spending to balance the budget is a farce.

- roidubouloi

February 22, 2010 at 3:43pm

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Roid, Your Table 5 does not include corp income taxes that are paid by many small business owners. Therefore, the % shown is too low. See Table 1 in this link which affirms (again) that the top 1% are paying 31.4%, in all federal taxes. http://www.cbo.gov/ftpdocs/88xx/doc8885/12-11-HistoricalTaxRates.pdf Also, you are not including local taxes paid. In the link below, you see the total size of government (federal, state, local) is $6T. http://www.usgovernmentspending.com/ If you want to use the $12T figure from the BEA instead of the $8T AGI figure, then fine. It doesn't change the conclusion much at all. So, using your BEA numbers, 50% of our income is taxed away by federal, state and local taxes. To balance the budget and pay down the debt will require that (6+1.4)/12 = 61% is taxed away. Please don't type a shitload of long paragraphs again. Just agree or disagree with each point. I'll do the same if you wish: * The top 1% paid 31.4% in pre-tax income in 2005 * Combined, our Federal, State of Local Government spending is ~$6T annually * BEA Personal Income for 2009 is $12T.

- seattleeng

February 22, 2010 at 11:07pm

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First bullet was confusing: --- Please don't type a shitload of long paragraphs again. Just agree or disagree with each point. I'll do the same if you wish: * The top 1% paid 31.4% of gross income in taxes in 2005 * Combined, our Federal, State of Local Government spending is ~$6T annually * BEA Personal Income for 2009 is ~$12T.

- seattleeng

February 23, 2010 at 2:26am

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Total government expenditure in 2009 was $5.356 trillion. Why keep making up numbers when you can read the truth right off of a BEA table? Of that more than $2.5 trillion was transfer payments. Less than $3 trillion was government expenditure, and that was inflated by the stimulus. Total income, net national product, was $13 trillion in 2009. Personal income is a sub-category. The top 10% paid about 31.4% in TOTAL taxes, at all levels of government, but the top 1% paid only 30.9%. Moreover, the 4th quintile paid 30%, the third quintile 27%, the second quintile 22.3% and the bottom quntile 18.7%. The tax system in its entirety is barely progressive. The bottom 40% pay an average of about 20%; the top 60% an average of about 30%. If you look at shares of income versus shares of taxes, they are barely different. Furthermore, as I have repeatedly called to your attention, the Federal budget deficit is due to the failure to fund core government. Entitlements are a separate problem and it is not the wealthy who has been funding them. The rich want the government, national defense, to protect their interests. They just want someone else's children and grandchildren to pay for it. Shameful.

- roidubouloi

February 23, 2010 at 7:32am

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Seattle, I assume you are really an engineer, but you abuse numbers. It is fine at times to use very round figures, but when you get into ratios and you round the numerator up and the denominator down, it begins to make a big difference. You keep insisting that taxes are taking 50% of income. It seems not to have occurred to you that if the highest all-in tax rate paid by any income group is 31% that taxes cannot be 50% or 60%. You also seem to have no understanding of the impact of transfer payments. While it is true, for example, that we have a pay-go pension system, the largest share of the funding for it is in the nature of banking. You don't think that when you deposit money in the bank they keep a little pile of your bills until you come back, do you? You understand, I assume, that one person deposits, one person withdraws and the net of many transactions can be close to zero. When people pay into social security, they are depositing to a Federal bank. Other people who have retired make withdrawals. If the people who are retiring had put the money in a commercial bank throughout their careers and are now withdrawing it to pay for their consumption, you wouldn't bitch about the tax burden of that, although their consumption would be the same whether they use the Federal bank or a commercial bank. There are differences, of course. For one, social security is mandatory, but that is of no consequence to the high-end tax-payers you are so worried about as they pay almost none of it. Also, a Federal pension is worth more than the appreciated value of what prior generations have historically contributed. That is because the Federal government has, in effect, the entire US economy to invest in because it can tax the entire US economy for its income share. If you took away the portion of social security that represents an unearned benefit, the vast majority of it would still consist of current workers depositing in the bank and current retirees withdrawing. That has almost nothing to do with Federal income tax rates. The structural deficit, not related to the business cycle, is about $500 billion. The represents about 4% of net national product. The top 10% of earners has half of national income, $6.5 trillion. Ergo, an 8% average increase on the top 10% would close the structural deficit. If the rate is now under 32%, it need only rise to under 40% and the budget deficit would be gone. Is it fair that people who earn $20,000 a year should pay 19% and people who earn a million a year should pay 39%? It certainly seems so to me. But, in either case, the argument that there is not enough high-end income to close the budget gap is nonsense. We had structural surpluses until Bush cut high-end taxes. That was supposed to unleash an economic miracle. It unleashed a disaster. You can make up numbers as long as you like. It doesn't change the reality of things. The truth in this case is fairly simple to determine by any number of methods that converge to the same answer (that's how it is with the truth). You just don't want to accept it. That's how things are on the right -- as rhubarbs says, a collection of non-falsifiable beliefs.

- roidubouloi

February 23, 2010 at 10:46am

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Roid, the total government expenditures you cite only federal and state. There is also local to consider. From the link I referenced, local government spending is $1.8T. As the CBO data notes, the top 1% paid a total of 31.4% in FEDERAL taxes, the top 10% paid a total of 27.1% in FEDERAL taxes. This does not include their state and local. Yes, state and local taxes are even more on top of that. Why is that so hard for you to understand? Articles are written all over the place about marginal tax rates hitting 60% in places like NYC. And yes, if you are making $10M ayear, you are paying a large chunk in all taxes, probably approaching 40-50%. Each dollar you earn after roughly half a million dollars is taxed at nearly 60%. http://www.nysun.com/new-york/tax-rates-for-new-yorkers-would-top-50-under-obama/82191/ * Fine, we can use $13T BEA number. * What is your source for local government spending across the country? Currently you are ignoring it. * Do you acknowledge that in NYC someone earning $1M/year is paying very close to 50% in federal, state, local taxes TODAY? * Why do you reject the CBO numbers on top rate taxes? I dont' read your long paragraphs. I am only interested in getting to firm footing on numbers with you. If you won't accept CBO numbers, or provide an alternate source that acknowledgers all the taxes, then there's not much more to discuss.

- seattleeng

February 23, 2010 at 11:35am

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Roid, on the one hand you claim SS is a "pass through" and then you talk about means testing. Social security is not a pass through. I could generate a much better rate of return on that money myself if given the chance. And yet I'm forced to pay it. For that reason, and the means testing that you suggest which is likely inevitable, social must be treated as a tax. It is currently and it will increasingly be a way to transfer money from those that saved to those that did not.

- seattleeng

February 23, 2010 at 12:30pm

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Since I live most of the year in Manhattan, I am aware of tax rates in NYC. My marginal rate is about 50%, less when you take into account the benefit of deducting state and local income taxes from Federal taxable income. My average rate is in the 30s. As I am in the highest bracket in one of if not the most highly taxed jurisdictions in the country, you are making my point: It is not possible for average tax rates to be as high as my marginal tax rate which is what you keep claiming. I don't know how the CBO numbers were constructed, what income is included and what income is excluded. The more income you exclude, the higher the tax rate appears. The rate on the nominal taxable income is not the same thing as total income. For tax rates on AGI, you can get the rates, divided by income class, right from the IRS. I don't think the CBO is unreliable but, particularly in the absence of the necessary detail, it is much simpler and more certain just to go to the IRS tables. For total tax rates, see this: http://economix.blogs.nytimes.com/2009/04/13/just-how-progressive-is-the-tax-system/ You also have to reconcile whatever you claim with the NIPA accounts. BEA table 3.1 states total government expenditure, including both state and local government. For 2009, the figure is, as I stated $5.356 trillion. There are subsidiary tables for Federal and State/Local government expenditures. The sum of these is consistently somewhat higher than the combined, about $400 billion in 2009, because the combined table consolidates and therefore counts Federal grants to state and local governments only once. If you just add the State/Local to the Federal, you are double-counting the grants. Table 3.9.5 gives you total government (at all levels) consumption and investment expenditure, that is, everything except transfer payments. The total for 2009 is $2,993. We have about $2 trillion of transfer payments and the balance is interest expense. The transfer payments and interest are returned to consumers and thus have a different impact than government consumption. I explained this to you once; I won't bother again and you aren't interested anyway. You intend to remain uninformed about macroeconomics no matter what. But, as your focus is on income taxes, you can add to the $3 trillion the half of transfer payments (at all levels of government) not funded with payroll taxes. That is $1 trillion. The interest is paying the same people who weren't paying enough taxes in the past. It's a wash, in one side, out the other (they have the delusion that they don't have to pay for what the government borrows, but it is a delusion, the point I made earlier about the notional difference between income and expenditure). Table 1.7.5 gives you the net national product, gross national product less depreciation. $13 trillion + in 2008, about $12.7 trillion in 2009, the decline being the definition of recession. I do not subtract depreciation on government assets because that is already included in the sum of government consumption expenditure and gross investment. $4 trillion out of $13 trillion, assuming we are out of the recession, is 31%. That is the average revenue tax rate for the entire country for all levels of government, federal, state, and local. If you want to include the whole works, payroll taxes too, you have $5 trillion once out of the recession. That is an average of 39%, but, of course, the rich aren't paying the payroll taxes. The problem with the tax system is that even the highest earners are only paying in taxes the average rate of government consumption. If there is any progressivity at all, they have to pay more than the average rate or we run deficits, exactly as we are doing. Table 1.1.5 breaks down government consumption expenditures. For the Federal government, it is about $800 billion defense and $400 billion for everything else. State and local government consumption is $1.8 trillion. The $3 trillion represents core government services. At the Federal level, 2/3 is defense. Please explain what core government services you would like to cut so that we don't have a deficit without having to raise taxes on the wealthiest to an average of 40%.

- roidubouloi

February 23, 2010 at 2:26pm

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I will explain again the meaning of transfers to you later. When and if social security benefits are means-tested, it will be more like insurance and less like a pension or, if you prefer, a redistribution of income funded by progressive taxes. But that isn't what is going on today. Today, we are not funding government. Until very recently, the social insurance funds were generating a surplus that was being used to minimize deficits on the core government side. That's what the whole "lock-box" discussion was about in the 2000 campaign. The Democrats were opposed to using the social insurance fund surpluses to enable deficits on the other side. The Republicans, quite clearly, had no such compunction.

- roidubouloi

February 23, 2010 at 2:30pm

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The CBO goes into excruciating detail how they calculated all this in the PDF. More detail than anything else we have discussed. I suggest you read it. It is comprehensive. They do include employer share of payroll taxes and "value-in-kind" of things such as Medicare, employer-paid health premiums, food stamps, subsidized lunches, energy assistance, etc. And also note the CBO looks at comprehensive income, not AGI. So, for the purposes we want, I think you will agree this is a very balanced view they present. After all, we want to know how much what what flows in also flows to the government, right? We aren't interested in those that hide behind losses and giant deductions. But, they are not considering state and local taxes from what I can see. Only Federal. If you user your CTJ figures for state and local taxes, the top 1% are at 8.2%, and the top 10% are at 11.1% (see front page) Combined, this gives tax rates on gross income (all sources): top 1%: 31.4% Federal + 8.2% State and Local = 39.6% Total Taxes top 5%: 28.7% Federal + 10.1% State and Local = 38.7% top 10%: 15.9% Federal + 10.8% State and Local = 26.7% CBO source, with detailed explanation of how they figure this is here: http://www.cbo.gov/ftpdocs/88xx/doc8885/12-11-HistoricalTaxRates.pdf CTJ source of State and Local Taxes as a % of Income: http://www.ctj.org/pdf/taxday2009.pdf Can we agree the top 1% are paying 40% of all earnings in taxes? The quality of the CBO source should not be in dispute. The CTJ source should make you happy. I can accept it. And yes, this means very nearly 50% (or more) of AGI is being paid in taxes (Fed, State, Local) for the top 1%.

- seattleeng

February 24, 2010 at 1:14am

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Here's more CBO data (same as before, just more detail), with a signed statement to Congress as the report was prepared at their request. So, the data I am citing is definitive. They also address why the BEA data isn't correct in their estimation. So, you might say you don't understand the data. That's fine. But it's THE data that is being used in Congress. And it comes from the CBO. http://cbo.gov/ftpdocs/98xx/doc9884/12-23-EffectiveTaxRates_Letter.pdf

- seattleeng

February 24, 2010 at 1:41am

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No, it isn't a balanced view. The CBO is telling you explicitly that they are not including all income in the denominator. For example, they say they are imputing corporate taxes to owners but that they are counting income on essentially a cash basis. If you understand accounting, you would understand that, at the end of the day, the tax burden for the country cannot be more than the expenditures of government and the income of the country is the net national product. If you exclude various forms of income from the tax base, as tax definitions do and as the CBO does, you can come up with whatever "rate" for taxes you want. The IRS is a reliable source for data on nominal tax rates. If you are going to start messing with the IRS definitions of income and of taxes, then you ought to be comprehensive. The distortion is nicely summarized in CBO table A-1 (the place where the CBO fesses up, at least not hiding its methodology). Compare the income shares as determined by the CBO for its "Adjusted Household Income" and the income shares according to the BEA. At the top tier, the CBO share is 80% of the BEA share, which means that, in reality, the CBO has understated the tax rate of high earners. If you adjust the 40% you claim to real income, lo and behold, it becomes 32%, the number I have been quoting you. Conversely, the CBO attributes a 65% income share to the bottom half instead of the BEA 51%. That makes the rate at the bottom appear to be only 78% of what it really is in economic terms. Now, if you think the CBO definition of economic income is in any way more accurate than what the BEA publishes -- the best definition available and the product of millions of dollars of research and the refinement of 50 years -- you don't know what the BEA does or what the CBO does. As to why the CBO was presenting its information in this way, I cannot say. It may depend on the question posed. It may be political. I don't know. But I can assure you that the BEA data on income is the most comprehensive and accurate that exists. If you use the BEA data, you come out with the right answer in the aggregate which allows you to check the sense of the intermediate results. The average rate for taxes at the top, all in, including all taxes and all levels of government, iss 32%. By the way, the don't say that the BEA data is not correct. They say they are using it in what is in fact an idiosyncratic way. The moment you claim that you are relying on a cash basis of income, you will be capturing all the income of the wage-earning class and excluding a lot of the income of the capitalist class. Then you get exactly the distortion in income shares that the CBO confesses too at the end.

- roidubouloi

February 24, 2010 at 2:23am

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By the way, Seattle, it took me literally about 6 minutes of scanning the CBO report to spot the key problem. You are not to be criticized for failing to do so. I have been analyzing financial reports and statements for 30 years and the supervisor, on behalf of shareholders, of a number of financially complex organizations. I have been using the government's economic data throughout that time and have come to understand it more deeply after several years of work toward a doctorate in economics. The CBO document is a strange one. It is, from what I can tell, pretty straightforward about its methodology. The CBO cannot therefore be accused of hiding what it is doing. However, its approach is very idiosyncratic and results in a rather obvious source of error if what one is ostensibly attempting to do is determine the difference between gross economic income and after-tax economic income of various segments of society -- the effective average tax rate for the segment. As I pointed out to you, round numbers may be fine for some purposes, but when you get into ratios or percentages, errors in either the numerator or the denominator can quickly lead to a bad result.

- roidubouloi

February 24, 2010 at 2:40am

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OK, so you are saying that THE report provided to congress over the last 30 years to answer the question of "what are the effective tax rates on households" is not be believed because you prefer another report that does NOT attempt to measure tax rates on HOUSEHOLDS, ignores pension monies paid to retirees and includes income earned on behalf of institutions. I see. This is THE definitive report, used by congress for their decision making, and it attempts to accurately measure the money flowing into and out of each household yearly. No other source of data attempts to do this. Not the BEA figures. The BEA figures includes funds earned by institutions. Not the IRS figures. The IRS figures only deal with AGI. Thus, it's not a credible source for tax rates on gross income, and the IRS doesn't measure effective cash contributions of social programs. This is about as solid of a source as we will see, that pays more attention to fairly counting the monies wrt households than any other government source. Come on! This is the CBO, dude! Given the task by congress to find the effective tax rates! As they've done for 30 years! And you can bet they meet with BEA guys to discuss methodologies, and for the purpose they've been given, they deviated from BEA. This is air tight. Why not just man up and say "I don't agree with the methodology, but I do respect the 30 economists at the CBO that have worked on this over the years, and therefore I accept the figures" If you can't accept this, you will reveal yourself as an ideologue, incapable of fairly arguing given air-tight contrary evidence and instead clinging to twisted sources of data that you claim make your case. You will be no better than all the 9/11 truthers that cling to strange metallurgy reports that they find on obscure websites showing that jet fuel cannot melt steel.

- seattleeng

February 24, 2010 at 11:17am

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That's nonsense, seattle, merely a demonstration of your ignorance (of which there is already aplenty). This report isn't the definitive anything. It tells you on its face that it is excluding certain income and even gives you a chart that reconciles its "income shares" with those determined by the BEA. The CBO is not claiming that that the BEA determinations are incorrect (if you think so, your reading is as challenged as your algebra). It is saying that, as a policy determination, it is choosing to exclude certain income and in effect calculate the tax rate based, more or less, only on that portion of economic income that actually flows through the household or that the CBO, in an exercise of its judgment, decided to impute to the household. It thereby includes some things and excludes others. Whether this is motivated by the nature of the request from Congress -- which most certainly is policy and politically driven -- or by the way the CBO chooses to respond, I am not in a position to say, and neither are you. I am sorry that you don't know how to read and interpret this report, but you don't. All income is owned by someone, whether it is direct or through intermediaries or layers of intermediaries. There is no loose income floating around that belongs to "institutions" without some ultimate equitable owner. There is always a human being somewhere who accrues that value. The point you are incapable of grasping as you struggle to justify what so far has been one incorrect claim after another is that the exclusion of various forms of income from the tax base immediately induces those who have the ability to shift income from one form to another, or from one form of ownership to another, to do so. Then that income escapes taxation lowering their effective tax rate. Do you think that they imagine that they no longer have that economic income because it is untaxed? If they hold it in some institutional form, do you think they consider themselves the poorer for it? The other part of this reality is that the ability to change the tax characteristics of income accrues almost entirely to income from capital, not to income from labor. There are some limited means for people who work for a living to shelter income from tax, but it pales in comparison to what the owners of assets can do. Do you remember the $2 trillion of national income that I called to your attention as neither being in corporate profits nor in AGI? Do you think it went to Mars? Do you think it went to schools and hospitals? Now, if you would like to argue that the BEA allocation of aggregate net national product to different income tiers is incorrect, go ahead. But please find some evidence to that effect. If you think that the CBO report is evidence of that, then, as I said, you simply don't understand it. The CBO itself says nothing of the kind. I would also point out that the net national product includes only current output. It does not include any income from appreciation of capital assets. And who do you suppose enjoys the benefit of capital gains, wage-earners? Those gains are not taxed until realized which often allows the wealthy to consume what they want with little taxable income, simply by timing the realization of gains and losses so that the gains remain unrealized. There are other ways to use unrealized gains to finance consumption. Get a grip, man. The BEA allocates 100% of net national product to someone. The allocation has some small rate of error, but it is complete. The CBO is doing something else and says so. Indeed, the CBO wouldn't have the resources to reinvestigate the BEA data if it wanted to. Nor would 30 economists or a thousand economists. The BEA data ARE the definitive data for the US, right or wrong. Since the entire point of this discussion was what the tax rates are in relation to economic income and what they would have to be to eliminate budget deficits if all income were taxed, or at least if tax rates were adjusted so that the effective tax rates compensated for income classes that we don't want to tax, you are arguing in a circle, as though some income must be excluded from taxation because god says so, or current practice does so, or the CBO writes a report that reflects current tax practice. The particular exclusions from income that the CBO makes are no more written in heaven than the exclusions from the definition of AGI. If you want to pretend that the $2 trillion of income that isn't corporate profit or AGI doesn't exist, that's your business. I wouldn't know whether to ascribe that choice to ideology, religion, or incapacity. Or let me put it this way: Try actually reading the CBO report and understanding exactly what it means rather than insisting it is "air-tight evidence" of what you want to believe. I will happily concede that the CBO supports perfectly the particular claims that it makes -- but you have to understand what those claims are and their relationship to national income accounting. Otherwise, you still don't know what you are talking about.

- roidubouloi

February 24, 2010 at 2:20pm

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Dude, I particularly liked your "twisted sources of data." That was a good one. Suggests you are fairly bursting at the seams in frustration. Do you mean the BEA income shares that the CBO courteously reports in its Table A-1? That "twisted source of data?" Or do you mean the same "twisted source of data" as reported directly by the BEA?

- roidubouloi

February 24, 2010 at 2:26pm

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I have come up with a very simply algebraic example to help you, seattle. Let us suppose that the income shares of net national product are 50-50 to the bottom 90% of households and the top 10%. That includes all net national product, gross output less depreciation, as defined by the BEA. (If you don't like their definition of net national product, come up with a better one.) The shares include transfer payments received so they represent a complete allocation of net national product. The total tax burden at all levels of government is 40%, including transfer payments. The top 10% pays 75% of that, the bottom 90% pays 25%. The effective tax rates, relative to share of net national product, are 60% and 20%. The after-tax shares of the two tiers are 1/3 for the top 10% and 2/3 for the bottom 90%. It is determined for a policy reason that 20% of the output share of the top tier should not be included in the tax base. Could be to create an incentive to behavior, could be because of the difficulty of measurement or collection. Let us just assume it is a sound reason. The output as reduced is defined as "household income." Obviously, the net national product remains the same. It is also decided that the "cost" of the exclusion should be reflected in a proportionate increase in all tax rates. The cost is 12% of output. 9% of this goes to the top tier, 3% to the bottom tier. The tax burden of the bottom tier rises from 10% of output to 13% of output. The tax burden of the top tier falls from 30% of output to 27% of output. As a share of national income, the effective rate of the top tier is now 54% rather than 60%. The effective rate of the bottom tier is now 26% rather than 20%. Measured against "household income," however, the tax rates are 27/40 and 13/50, 67.5% and 26%. You are trying to tell me that the effective tax rate of the top tier went UP from 60% to 67.5%. That is self-evidently nonsense. The policy reasons for the change may be as sound as can be. But it cannot be claimed with a straight face that the effective tax rate of the top tier went up due to the change. If you exclude from the definition of income various pieces of the share of net national product, you can create whatever tax rate you want and say whatever you want about it for whatever purpose. But if one is talking about the effective tax rate, the difference between income shares before taxation and after taxation, then you have to stick with shares of net national product because that IS the national income for the period. Price changes may also reward those who own assets with gains at the expense of those who don't -- or those who don't may make up the difference through wage increases. That is a different macroeconomic question, although it also bears on the fairness of the tax system.

- roidubouloi

February 24, 2010 at 4:18pm

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My ignorance? I am not the one arguing that the way the CBO has been computing this for however many years is at fault. Are you really arguing that the CBO is calculating comprehensive household income incorrectly in a paper where they were given the job of calculating comprehensive household income? Seriously? For real? If the BEA were asked if their numbers were suitable for divining comprehensive household income and tax rates, do you really think they would say "Absolutely! And the CBO guys are fools!" I don't. I think they would say "These numbers we produce aren't intended for that. Congress uses the CBO figures for that. See those instead." And when respected (and non-partisan) Annenberg went to dig into this, they also used the same CBO figures. http://www.factcheck.org/askfactcheck/what_percent_of_taxes_does_the_top.html And they concluded the top 1% earned 18% of all income and paid 28% of all taxes. More than fair. Unless you can find a big guns economist that has written a peer-reviewed paper that pisses all over the CBO methodology, your argument is exhausted. Ready for phase 2? That is, a detailed drill down on how to seek some $1.5T in additional revenue on the back of those that are already being overtaxed?

- seattleeng

February 24, 2010 at 8:45pm

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Roid writes: "I have come up with a very simply algebraic example to help you, seattle." I think the CBO has done their job already. As I noted, they've been at this a long time. If you find an economist in a peer reviewed paper that has found a flaw in their methodology, then let's discuss. But when given the task of finding how much comprehensive income people earn, and how much they pay in taxes, the CBO report is complete. Annenberg agrees with them. Two top-notch non-partisan sources.

- seattleeng

February 24, 2010 at 8:49pm

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Seattle, are you illiterate or are you just so foaming at the mouth angry that you cannot read teh words on the page of the CBO report? It says this: "CBO’s measure of household income differs from NIPA personal income in many ways. NIPA income covers income earned in current production, whereas CBO’s household income measure is generally based on cash receipts, consistent with income reported on tax returns and in the Current Population Survey (CPS). * * * Another conceptual distinction concerns the population covered by the estimates. CBO’s measure includes only income received directly by households. The NIPA measure includes income earned on behalf of people by institutions such as nonprofits, pension funds, and insurance companies. Those institutions have substantial capital income, so NIPA measures of interest and dividends are significantly higher than CBO’s measure." These differences between accrual basis accounting, that considers total economic income, and a variant of cash basis accounting, used by tax returns and by the CBO with modifications, are trivial for those who earn only wages and salaries but significant for the high-income class. Read the last line quoted ten or 12 times until it sinks in. One of the points I have been making since the start is that the tax base excludes a lot of the income of high-earners and virtually none of the income of low earners so that claims about the "effective rate" of taxes on the rich overstate their tax rate. This is because low-earners have only cash income and high-earners have other forms of income -- for the most part mediated through various entities -- that they do not receive in cash but are none-the-less very real income. Just ask them how they feel about that income. The CBO is acknowledging this very phenomenon but, for whatever policy reason, is computing the requested rates based on modified cash accounting "consistent with income reported on tax returns." The very nice Table A-1 allows you to compute the magnitude of the difference, if you know how to read it. The BEA doesn't produce its numbers to answer a particular policy question or to support any particular set of policies. It just provides statistics, the best available on the US economy. Of course, one has to understand what they mean to make sense out of any of this. If BEA statisticians were asked what they thought of the CBO modifications, they would say, "We assume that the CBO's methods are appropriate for the question they undertook to answer. We have no professional opinion about the question or the methodology." If you asked the BEA what are the economic income shares of different income classes, they would direct you to one of their tables. And if you asked the CBO the same question, they would concur with the BEA. I see the point is also lost on you about the difference between expenditure and nominal income and the fact that there cannot be a shortage of income/output for the government share because the government has already received just that share and spent it. This is actually very funny because, if you are such a big fan of cash basis accounting, you would appreciate that the expenditure of the government IS its income. The issuance of promissory notes means that its accrued income (they kind you don't like) is different than its cash receipts (the kind you do like). But, what they heck. You don't know any accounting, you don't know more than a smattering of economics, less than a freshman year's worth I would say, you cannot understand what I am talking about, and you are not educable. So be it. It is just one of those perverse things that everyone imagines that economics is for amateurs and that if you read Ayn Rand you know all about it. Unlike, say engineering, where the naîve are as likely as you are here not to have a clue.

- roidubouloi

February 24, 2010 at 11:33pm

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Maybe you can get this: The CBO report takes the taxes paid by various entities and allocates the tax to the economic or equitable owners. Then it takes the reported income on which those taxes were based and allocates that income to the persons to whom it allocated the taxes so that the income follows the taxes. It then allocates untaxed cash receipts to the persons who received them (in this case typically the low-wage earners) which further increases their "measured" income relative to the rich who have lots of untaxed income that they do not receive in cash. Then it computes the tax rate based on the taxes and the income it has assigned to each class. With the exception of untaxed cash receipts, it is basically allocated taxable income to income classes; it is not allocating economic income, and it says so. The purpose of the CBO report is therefore to eliminate the obscuring effects of taxable entities by consolidating them with the equitable owners. It is essentially a report of the rate of taxation relative to the stated tax base. They are quite explicit that they are excluding income from the tax base because they are essentially following the definitions of the tax laws. They are reporting about the tax laws, not about the economy. Is that still beyond you?

- roidubouloi

February 25, 2010 at 12:00am

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The only part that potentially strikes me as worthy of digging into is: "Another conceptual distinction concerns the population covered by the estimates. CBO’s measure includes only income received directly by households. The NIPA measure includes income earned on behalf of people by institutions such as nonprofits, pension funds, and insurance companies. Those institutions have substantial capital income, so NIPA measures of interest and dividends are significantly higher than CBO’s measure." There aren't a lot of wealthy people with pensions. And insurance payments to all people are fairly earned through premiums paid. Corp interest and dividends are paid to shareholders and reported as cap gains. They are also available to everyone and in fact are used by pensions to maximize the returns for their members. Please name the specific mechanism you are thinking of here that allows a wealthy person to earn a lot of unreported money.

- seattleeng

February 25, 2010 at 11:33am

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Wealthy people certainly do have pensions. If they control businesses, they establish pension plans. Since the contributions are based on salary, they can contribute a lot and then have equity build tax-free. Executives also participate in pension plans. Then there are deferred compensation plans, stock options, shadow options, whole-life insurance, money-purchase plans, tax-exempt municipal bonds, various gift devices and testamentary devices, ways of parking money offshore so long as it is not in a personal holding company and thereby deferring gains, and a raft of other things that ingenious tax lawyers invent. If you want to know the aggregate effect of all of this, all you need to do is look at Table A-1 in the CBO report. It gives you the income shares according to the BEA and according to the measure employed by the CBO. You can be sure that the BEA figures are the closest thing to economic income that anyone is capable of measuring, and the CBO would agree. At the highest level, the CBO share of "modified taxable income" is only 80% of the share of BEA economic income. Since these are shares of the whole, not dollar-denominated reductions, it means that the taxable income of the wealthy as a share of the total tax base is substantially lower than their share of economic income. Read the report. It is all laid out for you if you pay attention.

- roidubouloi

February 25, 2010 at 10:07pm

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Sorry, if that's your best answer, I'll stick with the CBO explanation. You'll note at one point today in the health care forum the R's and D's got into a short debate over the validity of CBO numbers. The conclusion: "OK, so then let's work with that, because quite honestly, if we can't work with CBO numbers, we're lost." Now, ready for phase 2? Ready to work to understand how to generate $1.5T needed to cover all this?

- seattleeng

February 25, 2010 at 10:46pm

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You can stick with it, seattle, as the CBO numbers are surely accurate. Unfortunately, you don't understand what they mean. As with all of you right-wing ideologues, even when the CBO itself explains it to you in plain English, you are going to stick with your alternate reality anyway. You're not going to let any facts get in your way no matter what. The BEA is not in the business of making projections, as the CBO is. It is in the business of measuring the US economy in great detail and reporting the data. The CBO uses the BEA data, of course. Everyone who knows anything does. Yet, I believe the BEA is what you referred to as my "twisted source of data," illustrating your tentative relationship to evidence and reality. Do you know what the difference between a structural deficit and a cyclical deficit is? Do you know what "automatic stabilizers" are? A structural deficit is one that the government runs in a full employment economy. That's what George Bush, wielding your wacko tax-cut ideology, gave the country. He turned structural surpluses into structural deficits. In contrast, a cyclical deficit arises during a recession because Federal tax receipts decline while Federal government budgets and transfer payments are maintained. This is called "automatic stabilization" because it does not require any change of policy and has the desirable effect of maintaining purchasing power during recession, countering the effects of the recession. The structural deficit is not more than $500 billion. The automatic stabilization accounts for roughly another $500 billion of the current deficit. The stimulus plan -- a deliberate policy of adding to the effects of automatic stabilization -- accounts for roughly another $500 billion. We don't WANT to eliminate the portion of the deficit that is cyclical. We need it to counter the recession. At this moment, we don't want to eliminate the structural deficit either, although we would be well-served by raising the taxes as needed to eliminate the structural deficit and spending the money as more counter-cyclical stimulus. Of the $500 billion of structural deficit, roughly $200 billion is in the social insurance funds, a recent phenomenon. Increase the cap on income subject to FICA and means-test the benefits and the deficits can be eliminated. Roughly $300 billion of the structural deficit is in core government. There is $3 trillion of taxable income (not economic income) on returns of the top 5% of earners, with taxable income starting at $270,000. Tax that income an additional 7%, but do it progressively. $2 trillion is on returns of $500,000 and more. $175 billion from them raises their average rate from about 20% to 29%. $25 billion from the second tier of the top 5% raises their average rate from 15% to 18%. The earner with $270,000 pays about $7,000 of additional taxes. Together, that's worth $200 billion. You'll be happy; the numbers come out of the CBO report. Raise average corporate tax rates on their $1.5 trillion of stated profits from 20% to 27% for another $100 billion. That closes the deficit. There are plenty of favorable tax treatments that can be closed for additional revenue, especially eliminating tax exclusions for the highest earners.

- roidubouloi

February 26, 2010 at 2:20am

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When the top 10% are already being overtaxed, why on earth would you propose means testing on SS? That's just a pure and simple money grab. And why on earth would you propose raising corp taxes when those are just passed through to consumers and the stock market and ultimately make US corps less competitive?

- seattleeng

February 26, 2010 at 11:40am

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Since you are now reduced to gibbering Republican propaganda, devoid of meaning -- "the top 10% are already being overtaxed," "pure and simple money grab" -- I hereby accept your capitulation. You cannot support your claims, and now you no longer even make the effort. The best you have been able to do in the course of this discussion is falsely to claim that a CBO report says something it doesn't say. And so, like your ideological peers, you now retreat to your propaganda safe haven, repeating ad nauseum your political catechism. The only glimmer of light there is your recognition that the economic cost of taxes paid by corporations is ultimately borne by particular people. Maybe someday the thought will penetrate that the economic income of corporations and institutions is also ultimately to the benefit of particular people and that their effective tax rate is computed by comparing their pre-tax economic income and their after-tax economic income. It's pretty deep for you, I know, but I think you have that much potential. (Come to think of it; you are never going to get that point because that is exactly your scam and that of the entire crazy right-wing -- to count all the taxes the rich pay, direct and indirect, but to fail to count all their income so that you all can insist in the face of reality that they, meaning you, are over-taxed.) Goodbye, seattle. I have learned a lot by doing the research to refute your absurdities. It is apparent that you, however, are unable to learn anything as you are firmly in the grip of your Randian thrall. As soon as one of your false claims is laid to rest with the facts, you simply come up with another, each one more vague than the last so that, eventually, any refutation by the facts becomes impossible. That's the way you like it. Yes, seattle, the earth IS flat, just as you say. Make sure you don't fall off the edge.

- roidubouloi

February 26, 2010 at 2:06pm

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And at the end of the day we are left to cold, hard CBO figures stating that the top 1% earn 18.1% of the income, and pay 38.8% of the total tax liabilities. And the top 10% earn 40.9% of the income, and pay 72.7% of the federal tax burden. Yes, this means overtaxed. Keep telling yourself the CBO are clowns. PS. In all these paragraphs you've typed, you've not been able to give one concrete example of how the CBO figures are rigged. Lots of blustering. Lots of arm waving. But not a single example of how a husband and wife earning $350K with $800K in 401K and savings are making out like bandits in all this and how the CBO is rigging the system in their favor. It's be fun. Prepare to meet all these facts and figures again in another thread :)

- seattleeng

February 26, 2010 at 8:33pm

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Oh, I just can't help myself, you are such a boob, and quite obviously intentionally so since you think you have a hobby horse to ride. The CBO figures aren't rigged, and I have never claimed they are. But one needs to read the CBO's explanation of its methodology and then to be capable of understanding what one reads in order to know what those figures mean. You cannot do either. With slight modifications (the addition to taxable income of non-taxable cash receipts), the CBO is only using taxable income, not economic income, in the denominator. Why? Because that is the nature of the exercise it undertook at the behest of the Congress, to consolidate all federal taxes and all taxable income and compute the effective rate that way, largely as it is embodied in the existing tax laws. They were not challenging the policy decisions embodied in the exclusion of large classes of income from the tax base nor were they calculating the effects of the exclusion of large classes of income from the tax base. As taxable income is significantly smaller than economic income for the wealthy, their tax rate is overstated relative to the cost to them in economic income. Similarly, their share of taxable income is smaller than their share of economic income. Facts and figures are great, but one still requires both the willingness and ability to understand them. I can explain in simple terms why and how the CBO figures on income distribution differ from the BEA figures. You just keep insisting that the BEA is wrong although the BEA is also the source of all the data used by the CBO. So, keep telling yourself that the BEA are clowns. Or try, if you can, reading to the bottom of CBO Table 5 which states that the total pre-tax income, for all income groups, upon which the CBO is computing effective tax rates was $9.7 trillion in 2005. The national income in 2005, before government depreciation, was $11.5 trillion (BEA Table 1.7.5). $1.8 trillion of private income was not included in the tax base that year. Who got it do you think? The poor? Apart from the fact that you misinterpret data, an error at a relatively high level of abstraction, you cannot even read the CBO tables correctly. According to Tables 2 and 3, the top 1% has 18.0% of the pre-tax income and pays 27.6% of Federal tax liabilities, not 38.8% as you say. What's more, even by the CBO measure, the top 1% had 18.0% of pre-tax income which was reduced to a mere 15.7% of after-tax income by what you insist is "over-taxing." That is over-taxing? The already enormous income share of the wealthiest is reduced through taxation by 12.8%? You cannot even connect the claims you are making to the data you purport to rely on (with all your misinterpretation) in any sensible way. Remind me to stay out of Seattle. There might be some building, highway, bridge or control system engineered by you. Given the way you abuse data and numbers, one would be in mortal peril.

- roidubouloi

February 26, 2010 at 11:53pm

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