I know very little about taxes. I pay them. I have always assumed that everyone can build a case for why they should pay less. I also figure that some people cheat and don’t pay theirs, and that others use their influence within the political process to have the laws written in such a way that reduces their taxes without “cheating.” Without any personal effort I was along for the ride and benefited greatly from the redistribution of taxes affected by Reagan in 1981 and 1986 and Bush in 2001 and 2003.
I’ve used the same accountant for over forty years and he made sure that I got every penny of benefit that these laws offered. In the seventies I was audited twice because I took large deductions for medical expenses while I was doing a psychoanalysis. Because I had a good accountant my deductions were proper and no taxes or penalties were due. After two audits that went well, I would never change accountants. Changing accountants after a successful defense in an audit would be like leaving a doctor who had saved your life. When thirty years ago my accountant decided to move his practice to Maine, my business went with him. Now, I sweat when I think that he might retire. Our relationship is built on my trust in his expertise and the ability of my wife to feed him data. I just sign the forms. We live by his professional opinion. We write a check when he says to, or we joyfully receive a refund if he says one is due.
I have never voted for a politician who promised to lower my taxes. It has been my bias that political promises to lower taxes were invitations to join in the mugging of the less fortunate. Quite irrationally I like the idea of avoiding deficits. Deficits are usually blamed on too much social spending, though it seems to me they occur when we fail to levy enough taxes to cover the cost of the legislation that we passed. Despite those opinions, after I cast my vote I have quietly accepted whatever the politicians give me.
I need to change by applying the same effort and resistance to harmful tax policy that I apply to harmful healthcare policy. I hope to demonstrate that it is irrational to fight for better healthcare and to advocate addressing the social determinants of health and simultaneously be silent when tax policies are offered that undermine our ability to improve our collective experience. I am the last person who has enough interest and knowledge of taxes to write about tax policy. I know that taxes have a long history. You can read about them in the Bible. When Christ was asked about taxes it is recorded in Matthew 22:21 that he famously responded:
…”Render to Caesar the things that are Caesar’s; and to God the things that are God’s.
As wise as that sounds, I think that it needs to be coupled with Chapter 25 verse 40 of the same gospel of St. Matthew to give us anything close to an operating principle:
And the King shall answer and say unto them, Verily I say unto you, Inasmuch as ye have done it unto one of the least of these my brethren, ye have done it unto me.
I have come to believe that this observation cuts both ways, the accounting includes what we have done and what we have neglected to do. It may be a reach to attach it to taxes and healthcare without also including the concept of the federal budget. What follows is a retired doctor’s attempt to connect the dots between health, healthcare, the federal budget, taxes, and tax “reform”.
As a disclaimer I should admit that until recently I might have failed the test if asked to describe the difference between a tax deduction and a tax credit. I have heard for years that we should not allow hedge fund managers to be compensated for “carried interest” , but did not know that it was a loophole allowing them to pay taxes on large portions of their income at the lower “capital gains” rate than at the personal income rate that most of us pay on our earnings and that they pay on “management fees.” Did you know that the concept goes back to the sixteenth century shipping trade?
Perhaps I can be excused for not fully understanding “carried interest,” but my face should be a little red for not fully understanding one of the most important tax benefits for the working poor, the “earned income tax credit.” Going back to President Reagan’s comments about “welfare queens” many people have imagined that they are black, take drugs, and have a lot of babies out of wedlock to increase their revenue from welfare. I hear comments in conversations here in New Hampshire and when I travel that confirm to me that these “dog whistle” comments are still feeding biases about “welfare queens.” Myth and bias seem to be fundamental to much of our current tax code and our budget allotments and my cynicism prevents me from trusting that fixing these defects is what is meant by our president when he says that we need “tax reform.”
The “earned income tax credit” , EITC or EIC, is a refundable tax credit for working poor individuals and couples, particularly those with children. The size of the credit is a function of the number of children or legally qualifying dependents that the “taxpayer” supports. The EITC may produce a “tax refund” which becomes an incentive to earn more. Until maximum payments are achieved there is always an incentive to earn more and a disincentive to “go on welfare.” Some sociologists and economists consider the EITC to be the most effective tax policy ever created in our efforts to lift people out of poverty. I consider it to be a very small step in the direction of reducing inequality. Some economists believe it is more effective than raising the minimum wage. The combination of raising the minimum wage and strengthening the EITC seem like a dynamic duo worthy of further consideration.
To really explain this moment in our collective history when we are told that job creation urgently depends on tax reform that will substantially benefit the already richest members of our society, I must digress to be sure you understand the arcane rules that govern the methodology of how a bill passes in the Senate. As you probably noticed in the debate over repealing and replacing the ACA, to avoid a filibuster in the Senate there are two choices. The best is to have 60 votes (it was once 67). The alternative process is to use a financial “reconciliation” process to pass the bill with a simple majority of 51 votes.
In terms of the process before us now, to qualify for the “reconciliation” pathway, the current tax reform package must not produce more than a 1.5 trillion dollar additional deficit before 2027. The full wish list of proposed giveaways to the wealthiest Americans and corporations will be many multiples of that number. The way around the roadblock is to come up with a deceptive package of gives and takes sold under the banner of “creating jobs” and creating prosperity by making the rich richer with the hope that folks and corporations already flush with cash will take this new cash and invest it in expanding the economy by growing industries that need more workers than robots. It is theorized that those new jobs, if they do get created, will generate tax revenue that more than replaces the tax reductions that were the seed money for the economic magic trick. This is Laffer Curve economics 2.0, or perhaps it is a modern equivalent of alchemy. Fool me once shame on you. Fool me twice shame on me. Fool me three times shame on both of us. Click on the link to experience the wisdom of Donald Trump.
As the conversation in Washington has shifted from healthcare to tax reform, the discussion seems to center around how tax reform will affect the middle class and whether or not the majority of benefit going to corporations and the wealthiest will ever benefit the rest of us. As I listened to reports and read articles in the newspapers, I am concerned that there is little, if anything, being said about what the impact of the spending realities on the programs for the poor that will allow the reconciliation process to work. If the middle class has financial woes worthy of concern, what about the poor? This week the Commonwealth Fund did venture some thoughts on how tax reform might impact healthcare. Their analysis was depressing. You should read it but here are the highlights:
The attempts to deeply cut federal healthcare programs are not over.
The futures of tax reform and health care will be intertwined for at least three reasons. [Quoting with a few edits]
- First, some conservatives in the House and Senate remain committed to including ACA repeal provisions in the tax bill. And, while they initially lost in their efforts to attach a repeal of the individual mandate to the current House Bill, conservatives may withhold support unless such a provision is included in the final bill.
- Second, the House tax proposal is expensive: the proposed tax cuts total $5 trillion. The budget resolution Congress passed last month allows up to $1.5 trillion of the total cost of the tax cut to be paid for with an increase in the federal deficit. This shortfall will go up over time. After the fights over which middle class deductions will remain, the only place to go that allows tax breaks for the wealthy and some relief for the middle class will be to gut entitlement programs. Key targets would be cuts to Medicaid and Medicare.
- Third, tax reform may ultimately affect access to health care in the not-so-distant future, even if specific health provisions are not included in the bill. Should it pass, the ballooning federal deficit that will follow its implementation will invariably lead to calls to reduce federal spending. Medicaid, Medicare, and ACA coverage will again be in the crosshairs given the portion of federal spending — 28 percent in 2017, growing to 40 percent in 2037 according to the Congressional Budget Office — these health programs represent.
Perhaps after those direct cuts to healthcare the next options could be those programs that form part of the social safety net like the food stamp program, the earned income tax credit, perhaps student loans, or other programs for the education and the retraining of the workforce. What about money for the opioid crisis? Your guess is as good as mine, but you can expect the cuts will come from places where the defense is weakest.
The favorite line of many football coaches is, “The best offense is a good defense.” I like the admonition from the distant past of medical professionalism that advises primum non nocere, above all do no harm. I think it is necessary for emphasis to put it into a more modern vernacular, “If you really are not sure what is going to happen, and the stakes are high if things go bad, don’t chose to do it and fight anyone who is crazy enough to try it.” That is where I stand on the tax reform proposals that have been presented so far. I admit that most of what “I know” may be flawed, but I know enough to know that the people who say they know what they are doing actually don’t. I am sorry to be cynical enough to say that their primary motivations seem to me to be self serving, but I can’t help it, and I hope that you will give the whole subject your interest and then speak your mind to somebody who has a vote.