The Incredible Shrinking Tax Rate for the Rich

The Incredible Shrinking Tax Rate for the Rich

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Plus: 1 in 4 US health-care dollars is wasted.
Monday, October 7, 2019

The Incredible Shrinking Tax Rate for the Rich

The highest-income households in the U.S. have seen an enormous reduction in their overall tax burdens since 1950, a development highlighted Sunday by The New York Times’ columnist David Leonhardt, using data from a forthcoming book by economists Emmanuel Saez and Gabriel Zucman.

“Every tax that falls substantially on the wealthy has plummeted over the past 70 years,” Leonhardt said, citing taxes on personal and corporate income, investments and estates.

The drop has been particularly noticeable at the very top of the income spectrum. “The overall tax rate on the richest 400 households last year was only 23 percent, meaning that their combined tax payments equaled less than one quarter of their total income,” Leonhardt wrote. “This overall rate was 70 percent in 1950 and 47 percent in 1980.”

Leonhardt ‘s piece includes a dynamic chart showing the change in the overall tax rate across the income spectrum from 1950 and 2018. The chart below fills in the first and last years in the analysis — clearly displaying the dramatic reduction in the total tax rate for households in the upper part of the income distribution over a nearly 70-year period.

Leonhardt said the data also show that the superrich now pay a lower tax rate than even the poor: “For the first time on record, the 400 wealthiest Americans last year paid a lower total tax rate — spanning federal, state and local taxes — than any other income group, according to newly released data.”

Middle class households, by comparison, have seen little change in their overall tax rates, with higher payroll taxes largely offsetting lower federal income taxes.

Other analysts pointed out a possible flaw in the numbers: They doesn’t appear to include refundable tax credits such as the Earned Income Tax Credit and the Child and Dependent Care Credit, which the Congressional Budget Office and others count as tax cuts. Doing so would presumably reduce the total tax rate for lower-income households (the left side of the chart) and possibly undercut the claim that the highest-income households now pay the lowest tax rate. There’s a vigorous debate going on about this on tax Twitter, some of which you can see in this thread.

Why it matters: Leonhardt’s piece, and the analysis by Saez and Zucman, is just the latest element in an ongoing push from the left against the prevailing tax orthodoxy that has existed over the last few decades — namely, that lower taxes are always better for both individuals and the economy. Economists Saez and Zucman want to reinstate dramatically higher taxes on upper-income households, which they say will foster a more dynamic economy, pointing to the historical record for evidence to back up their claim. “The American economy just doesn’t function very well when tax rates on the rich are low and inequality is sky high,” Leonhardt wrote. “It was true in the lead-up to the Great Depression, and it’s been true recently. Which means that raising high-end taxes isn’t about punishing the rich (who, by the way, will still be rich). It’s about creating an economy that works better for the vast majority of Americans.”

Read Leonhardt’s analysis here.

1 in 4 Dollars in US Health Care Is Wasted: Analysis

A new analysis published Monday in the Journal of the American Medical Association finds that about 25% of all U.S. health care spending goes to waste.

The authors, Drs. William H. Shrank and Teresa L. Rogstad of health insurer Humana and Natasha Parekh of the University of Pittsburgh School of Medicine, reviewed dozens of reports published over the last seven years to calculate the value of waste in the overall health care system. They found total estimated waste of $760 billion to $935 billion per year in 2019 dollars, broken down into six areas:

  • Administrative complexity, including inefficient rules, forms and requirements: $265.6 billion.
  • Pricing failure, including high prices driven by a lack of competition: $230.7 billion to $240.5 billion.
  • Failure of care delivery, including poor execution or the failure to adopt best practices: $102.4 billion to $165.7 billion.
  • Overtreatment or low-value care, including treatments that offer no benefits to patients: $75.7 billion to $101.2 billion.
  • Fraud and abuse, including fake bills and scams: $58.5 billion to $83.9 billion.
  • Failure of care coordination, including complications and readmissions: $27.2 billion to $78.2 billion.

Waste could be reduced significantly using a variety of known interventions, the authors said, with projected savings ranging from $191 billion to $282 billion, a potential reduction of roughly 25%.

Read the full analysis at JAMA.

Facing Potential Chaos, Trump Admin Will Delay Obamacare Changes if It Wins Lawsuit: Report

The impending federal appeals court ruling in the case challenging the constitutionality of the Affordable Care Act could present a conundrum to the Trump administration: A legal victory upholding a lower court’s decision to invalidate the law could quickly turn into a political defeat as a result of the chaos it creates in the health-care system.

Given that prospect — and with no clear plan for preserving the health benefits of millions of Americans if the court rules in its favor — the Trump administration reportedly plans to ask for a stay of the ruling if the appeals court strikes down all or part of Obamacare. “A senior administration official said the White House would also stress that ‘nothing is going to change overnight’ to stem expected panic that millions of Americans could lose their health insurance if the court invalidates all or part of the law,” the Post’s Paige Winfield Cunningham and Yasmeen Abutaleb report.

The administration may also seek to delay a potential Supreme Court review of the case until after the 2020 presidential election.

‘Principles,’ but no plan: “Senior administration officials say they have some ideas for replacing parts of the 2010 health-care law, ‘principles’ crafted in part by Centers for Medicare and Medicaid administrator Seema Verma,” Winfield Cunningham and Abutaleb report. “However, replacing key benefits — such as guaranteed coverage for people with preexisting conditions — would require the cooperation of Democratic congressional leaders, who have vowed to defend the law and have no interest in a piecemeal replacement plan likely to fall far short of preserving health coverage for about 20 million Americans.”

Replacement plan politics: This isn’t a fight congressional Republicans want, and the Trump administration is in a bind of its own making. Any comprehensive plan it puts out is bound to get criticized mercilessly, especially if, like past Republican proposals, it would result in millions of Americans losing coverage. But the administration’s lack of a clear plan will also open Trump up to renewed attacks, and ongoing uncertainty surrounding the health law, particularly its popular protections for those with preexisting conditions, probably won’t play well during election season either.

The bottom line: Sooner or later, the ACA is likely to end up before the Supreme Court again. The fate of Obamacare won’t be clear until after the justices rule — and voters have their say in 2020.

Pete Buttigieg Unveils Drug Plan

Democratic presidential candidate Pete Buttigieg on Monday rolled out a sweeping plan intended to lower prescription drug prices.

Here are some key elements of the plan:

Negotiating drug prices: Like other Democratic proposals, the Buttigieg “Affordable Medicine for All” plan calls for the federal government to negotiate Medicare drug prices with pharmaceutical companies, with those prices also applying to private insurance plans and Medicaid.

“The first drugs for negotiation will be those with very high price tags and large price differences between what we pay and what other industrialized countries pay, including those to treat diabetes, asthma, arthritis, HIV, and cancer,” the Buttigieg plan says.

As under the plan released recently by House Speaker Nancy Pelosi, drugmakers who refuse to negotiate will be required to pay a tax starting at 65% of a drug’s gross sales. The tax would rise by 10 percentage points, up to a maximum of 95%, each quarter that the company doesn’t comply.

Buttigieg would also allow the federal government to revoke a company’s patent rights if the manufacturer refuses to lower its price. “For ‘worst offender’ pharmaceutical companies that continue to price in a way that harms patients due to unaffordability, when attempts at direct negotiation are rebuffed, and in cases of national emergency related to either a natural disaster or a public health emergency, Pete will judiciously exercise these rights to take away patents,” the plan says.

Cap of out-of-pocket costs: His plan also would cap out-of-pocket spending on prescription drugs at $200 a month for seniors on Medicare and $250 a month for people choosing to enroll in a plan under his proposed public option.

Expand government investment in drug development and manufacturing: A primary focus here would be on antibiotics and medicines to protect against pandemics. Buttigieg also calls for increased U.S. manufacturing of essential drugs. “Currently, global medicine production is largely dependent on China,” the plan says. “This is a serious national security vulnerability that could be weaponized. If China were to ‘shut the door’ on medicine exports and drug ingredients, drug costs could skyrocket, and hospitals and clinics could stop functioning within months, if not days.”

Making drugmakers pay more: “The plan would be funded by significantly increasing an Obamacare-mandated fee on branded prescription drug companies to at least $8 billion per year, indexed to inflation. That’s about $5 billion more annually than drugmakers pay now,” Politico reports. “The pharmaceutical industry would also be on the hook for more of the costs of drugs when seniors with large out-of-pocket spending enter the ‘catastrophic’ phase of the Medicare prescription drug benefit. Drugmakers would also be penalized if the cost of their branded medicines increased faster than inflation.”

Why it matters: “Buttigieg’s drug pricing plan is the latest sign that while Democrats differ dramatically in their vision for the American health insurance landscape, they are far closer together in their willingness to take on the pharmaceutical industry,” STAT’s Nicholas Florko and Lev Facher write. “While Buttigieg has sought a middle ground on health coverage via his ‘Medicare for all who want it’ proposal, his drug pricing plan displays an appetite for aggressive drug industry reforms on par with that of candidates like Sens. Bernie Sanders (Vt.) and Elizabeth Warren (Mass.).”


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