Congress Must Act on Tax Reform 2.0
The tax reform we enacted last year is producing results. Instead of having the highest corporate tax rate in the developed world, the United States is a more attractive place to work and save and invest.
Yet our work isn’t done. We need another round of reforms – focused on middle-income families. Here are elements that should be part of that package and that should appeal to members of both political parties.
Bring Social Security into the 21st Century. Roughly 90 percent of seniors begin collecting Social Security benefits before they reach the full retirement age. Yet if these folks get a new job or a part-time job and earn one dollar more than $17,040, they will lose 50 cents of Social Security benefits because of the earnings penalty. This is a draconian tax enforced by the IRS. For a $20-an-hour employee, the tax kicks in if you work Monday, Tuesday and half of Wednesday.
When Social Security’s earnings penalty is combined with the Social Security benefits tax and other taxes, middle-income, senior workers can lose as much as 95 cents of every dollar of wages – the highest tax rate in the nation.
These nonsensical taxes are unfair. A study for the Goodman Institute estimates we could abolish them tomorrow without any net loss of revenue for the government.
When Social Security was created we were in the middle of the Great Depression. To some it appeared we had too many workers and too few jobs. Today we have the reverse problem. Many retirees have skills and training the economy desperately needs.
Widows with children, trying to get by on Social Security survivors benefits, also face a 50 percent earnings penalty. Negotiating the tough tradeoff between the demands of parenthood and the demands of work is hard enough in its own right. Let’s get government out of the way.
Bring Medicare into the 21st Century. Seniors are held hostage by antiquated laws that prevent them from using modern day services and technologies. Instead of trips to the doctor’s office, seniors should be able to talk to doctors by phone or email – the way many non-seniors do. Instead of trips to the emergency room at nights and on weekends, they should have access to Uber-type house calls. At $100 a month, concierge doctors have become very affordable, if only Medicare would allow it.
One way to modernize the system is to let Medicare make a deposit to a tax-free Health Savings Account for beneficiaries who are willing to manage their own primary care dollars. Seniors could then take advantage of the best services the market has to offer.
Bring laws affecting working families into the 21st Century. If employees have health insurance through a spouse’s employer, why can’t they forego the insurance in return for higher pay? Believe it or not, this is another income tax problem. An employer who lets even one employee choose between taxable wages and a non-taxed benefit risks having the IRS declare all the benefits taxable to all the employees. Does that make sense?
Why does a stay-at-home parent who takes a minimum wage job get immediately put into their spouse’s much higher tax bracket? These and many other provisions of our tax system were created years ago when Congress thought men would go to work, women would stay home and be wives and mothers and couples would never divorce.
It’s time to bring the tax law into the modern age.
Make the promises of tax reform permanent. According to Boston University economist Laurence Kotlikoff, a middle-aged, average-income family can expect an increase in lifetime income in the neighborhood of $60,000 to $70,000 because of the tax reform we enacted last year. To fully secure these benefits, however, the provisions that are scheduled to phase out (mainly provisions affecting individuals) must be made permanent.
Make health insurance affordable for everyone. Under ObamaCare we have skyrocketing premiums, a race to the bottom on access to doctors and hospitals and soaring deductibles that few families can afford. We need to implement a free market based system where there is no mandate to buy, no discrimination against pre-existing conditions, reasonable out of pocket limits and a functional exchange.
We need to reform our health care system, using principles that work so well for privately insured seniors.
For the long term, we should be bolder. Let’s replace our overly complex, highly regressive system of health care tax subsides, with a simple, refundable tax credit -- generous enough to give every American access to affordable health insurance.
These are just a few of the changes we need to make our tax system work better for seniors, for women, for working families and for everyone who is a potential patient in the health care system.