The rules of the game that have governed how health care benefits have
been financed and delivered in the U.S. for 60 years are being jettisoned.
The dismantling of those rules is about to accelerate and enter its final
stages. Under emerging new rules of the game, employers are exiting from
any responsibility or role in financing health benefits, effectively transferring
all financial liability and costs to their workers.
The Bush administration word-spin for the new rules is summed up in what
it calls “consumer driven health care,” which essentially means fully privatized
health care plans purchased by workers directly from insurance companies
and other financial institutions. It means employers will no longer manage,
maintain, or make contributions to traditional employer-provided health
benefit plans. It means workers are given a token stipend, then told to
go shop around and get their own.
Total health care spending in the U.S. today is around $2.2 trillion a
year, or about 16-17 percent of total U.S. Gross Domestic Product (GDP),
which is the cumulative value of all goods and services produced in the
U.S. in a year. Insurance companies and financial institutions today siphon
off for themselves about $1 trillion of that $2.2 trillion under the current
system. That $1 trillion diverted every year to the health insurance industry
is equal to a typical non-supervisory worker, earning an average hourly
wage of $17, working from January 1 through April 22 and turning over every
penny of this net pay for that period to an insurance company like United
Health, Cigna, or Aetna.
What follows is a detailed description on how to finance true single payer
universal health care through a fundamental restructuring of the current
tax system—a fundamental restructuring that would raise $1.2 trillion a
year while eliminating the insurance-finance industry’s current $1 trillion
a year diversion.
With single payer the U.S. government, through the Social Security Administration,
could tax corporations and individuals based on their income and affordability
(and not just payroll earnings) and raise funds to pay for health care
services for all citizens. The Social Security system would expand and,
in turn, make direct payments to doctors, hospitals, clinics, pharmacists,
and other providers of health care out of the revenues collected—much like
it now makes monthly retirement benefit payments to individuals and institutions
under the Social Security retirement program introduced in the late 1930s.
The government would retain no profits. It would set minimum prices for
services, much like what is now done in the Medicare program that provides
medical services payments for senior citizen over 65. All revenues would
be paid out for services in a pre-funded pay as you go arrangement, just
as in the case of Social Security retirement benefits, with the exception
of a contingency fund to cover normal cyclical fluctuations.
It is important to note that single payer universal health care thus defined
is not the same as national health insurance. In fact, it is not an insurance
system at all. There is no role for private insurance companies in a true
single payer universal health care system. National health insurance schemes
integrated with a single payer approach make the financing of a national
health care system as economically untenable as the current employer-provided
benefits plan system.
Single payer universal health care systems exist in some form or another
in most advanced industrial nations today. The only thing approximating
such an arrangement in the U.S. is Medicare, which provides health benefits
coverage for more than 45 million senior Americans at a minimal cost of
a barely 3 percent payroll tax on wage-only incomes—i.e., a system that
excludes all capital wealth from contributing to the health benefits of
its senior citizens.
Corporate, conservative, and liberal opponents of single payer universal
health care argue it cannot work. It is too expensive. Which is half true.
So long as insurance companies are in the picture and universal health
care means the same as national health insurance, with insurance companies
continuing to divert for themselves $1 trillion and more a year out of
total health care spending, it is likely health care in any universal sense
is not affordable. But with insurance companies and others out of the picture,
financing single payer universal health care is not difficult. The problem
in America is not whether there is sufficient wealth to fund universal
health care. The problem is how that wealth is distributed.
The key question for financing and delivering single payer universal health
care becomes, “Who pays?” Estimating the cost of financing single payer
universal health benefits in the U.S. begins with the current $2.2 trillion
annual health care spending. As noted, that $2.2 trillion figure represents
approximately 17 percent of annual U.S. Gross Domestic Product (GDP). Other
advanced industrial economies in Europe, Canada, and elsewhere that have
some form of single payer system spend only about 8-10 percent of their
total GDP on health care. Assuming a 9 percent average, that means the
U.S. spends about 8 percent of its GDP on unnecessary administration in
the health care financing system today. A transition to a single payer
universal system in the U.S could eliminate that cost. The remaining cost
of a single payer system should therefore equal no more than 9 percent
of GDP, or around $1.2 trillion a year.
A regular, annual flow of funds from several diversified revenue sources
is necessary to provide the $1.2 trillion annually. Diversification is
important, so that a crisis and decline in any given source does not result
in a major deficit in any given year. One-time sources of funding are undesirable.
Ongoing, reliable, and relatively stable funding sources are required.
The health care cost and funding crisis today represents a major structural
problem at the heart of the U.S. economy and its social structure. Bold
and innovative tax, as well as non-tax, proposals that represent major
structure changes must be the basis of any solution. There are seven fundamental
proposals that could provide an annual flow of funds equivalent to at least
$1.2 trillion a year to finance single payer universal health care:
1. Replace the Payroll Tax for Social Security with a Social Equity Tax
on all Incomes
The current tax structure for funding Social Security retirement, disability,
and Medicare today rests upon the payroll tax. That tax is equal to 15.3
percent of wages and salary income up to a ceiling of around $90,000 a
year as of 2005. Those earning more than $90,000 in salary or wages in
a given year pay no additional payroll tax on their wage and salary earnings
above $90,000. More importantly, those earning income from capital sources—i.e.,
capital gains, dividends, interest, rents, business income, and the various
forms of executive compensation (stock options, deferred pay, no interest
personal loans, tax gross ups, executive pensions, etc.)—pay no payroll
tax on that income.
If the current 15.3 percent payroll tax for Social Security were cut roughly
in half, to 7.6 percent, the 108 million non-supervisory workers in today’s
U.S. labor force—virtually all of whom earn less than the $90,000 limit—would
all receive an immediate 7.7 percent raise. If nothing else, that would
certainly get the attention of tens of millions of workers today as it
would represent more of a wage increase that many workers received over
the previous ten years combined. But then how to finance current Social
Security retirement, disability, and Medicare payments and how to fund
at least part of the further $1.2 trillion funding needed?
The U.S. federal tax structure is composed of five basic types of taxes:
the individual income tax, the corporate income tax, estate and gift tax,
the payroll tax for Social Security, and excise taxes. The first three—the
individual income tax, corporate income tax and estate tax—have all been
dramatically reduced as a percent of GDP, in all three cases reflecting
major tax cuts for corporations and the wealthy. Only the payroll tax,
levied on working and middle class families, has increased significantly
as a percent of GDP. Its percentage in fact has tripled.
For example, prior to 1980 the individual income tax averaged about 10
percent of GDP. After the Reagan and Bush major tax cuts on capital incomes,
that average declined to 7 percent by 2004. Similarly for the corporate
income tax, which once ranged about 4 percent of GDP but has fallen to
only 1.6 percent of GDP in 2004, and the estate tax, which averaged 0.6
percent, and now is only 0.25 percent. In comparison, the payroll tax,
which hits workers the hardest, averaged 2 percent prior to 1980 but rose
to 6.4 percent.
By returning income tax rates to pre-1980 levels as a percent of GDP by
focusing on raising top rates for the wealthy in the individual income
tax, by returning the rates for the corporate income tax to pre-1980 levels,
and by restoring the estate tax to pre-1980 levels, 2004 tax revenues could
have been increased in net terms by $728 billion for that year.
Cutting the payroll tax in half, from 6.4 percent of GDP to 3.2 percent,
would reduce total revenue available for social security by half: from
$749 billion to $374 billion, according to 2004 numbers. Replacing the
$375 billion to the Social Security system from the $728 billion net tax
revenue increase above would still leave $354 billion additional in 2004
that could be available for helping finance single payer universal health
In short, returning rates to pre-1980 for capital incomes (individual,
corporate, and estate) would allow a 7.5 percent cut in payroll taxes—i.e.,
an immediate wage raise of 7.5 percent for the 90 million working and middle
class households—and still leave $354 billion a year toward funding single
payer health care. Furthermore, raising the corporate income tax by an
additional 1 percent of GDP over each of the next three years—to 7 percent
from the pre-1980 level of 4 percent—could permit the phasing out of the
remaining 7.6 percent payroll tax altogether while still leaving the $354
billion available for single payer financing. $1.2 trillion minus $354
billion leaves $846 billion still to raise to finance single payer.
2. Restore the $4 Trillion in Principal and Interest Diverted from the
Social Security Trust Fund since 1985
In what has been the greatest theft of any working class in any country,
the Social Security fund surplus of $2 trillion has been diverted in total
to the U.S. general budget in order to offset annual U.S. budget deficits
(ironically, created by tax cuts for the wealthy and corporations and chronic
bloated defense budgets). If it weren’t for the Social Security surplus
diverted every year to the general budget, the U.S. annual budget deficits
would be ranging in the $500-$800 billion a year level instead of the recent
$300-$500 billion a year. The U.S. budget deficit in 2006, for example,
would have been more than $450 billion instead of the announced $298 billion.
Although Congress passed a rule establishing a lockbox on social security’s
trust fund in 1990, every year since Congress has suspended that lockbox
and diverted the funds to the general budget. The argument justifying this
practice has been that we owe that money to ourselves and that the current
IOUs left in the Social Security trust fund can always be replaced with
real funds. While in an accounting sense that may be true; in actual fact
to replace the missing $2 trillion would require borrowing the same amount
from banks and foreign sources, which politically is highly unlikely except
in the event of a national crisis.
Our second proposal therefore is just that. National health care is today
a national crisis. Therefore Congress should borrow and restore not only
the $2 trillion in principal stolen from the Social Security trust fund
since 1985 (i.e. stolen from workers), but should “borrow” and restore
the additional $2 trillion that would have been earned in interest as well
on that $2 trillion principal. This borrowing would be done in equal amounts
over a ten-year period, at the rate of $400 billion a year, with that $400
billion subsequently earmarked for deposit into the social security trust
fund for financing single payer universal health care.
That means we now have $400 billion a year added to the $354 billion a
3. Stop the Transfer of the $150 billion Annual Social Security Surplus
to the U.S. General Budget
Social Security is a pay as you go system. Payroll tax revenues brought
in every year by those who still work pay for the retirement benefits of
those not working. Social Security has generated a cumulative surplus every
year and has, in effect, subsidized the U.S. budget for more than two decades
now. In the past six years the annual surpluses in the Social Security
trust fund have been ranging from $153 to $171 billion a year. The diversion
of those amounts from the Fund amounts to a de facto income surtax on workers’
incomes up to the $90,000. Repealing this de facto income surtax by prohibiting
the transfer of the $150-$170 billion surplus every year results in that
surplus retained in the trust fund as another source for funding single
payer universal health care costs. Retaining the annual surplus would raise
another minimum $150 billion a year.
4. Repatriate Half the $8 Trillion in Hidden, Illegal Offshore Tax Shelters
In 1983 it was estimated that approximately $250 billion was hidden away
by corporations and the super-wealthy in offshore tax shelters, primarily
the Cayman islands in the Caribbean, the Bahamas, and the British Virgin
Islands. By 2004 this figure had risen to $7 trillion, according to that
most reliable capitalist source, the Morgan-Stanley bank. That figure of
$7 trillion is further corroborated by the European OECD.
Today the $7 trillion is almost certainly around $8 trillion, dispersed
in 34 island locations around the world. The IRS designates these 34 shelters
as “offshore secrecy jurisdictions.” Hearings currently underway in the
U.S. Senate on only the Cayman Islands tax shelter have identified at least
12,000 corporations operating as shell companies located in just one building
on Grand Cayman Island, “whose sole purpose is to evade U.S. taxes,” according
to Montana Senator Max Baucus this past May. The Caymans in particular
has become the hedge fund administration capital of the world, through
which passes the lions share of more than $400 trillion in derivatives
trading by hedge funds.
Many of the practices used to hide and shelter taxable income in the Caymans
and islands elsewhere are also practiced in the onshore U.S. tax shelter
called the state of Delaware where more than half of all U.S. corporations
and 60 percent of all Fortune 500 companies are headquartered. In 2001
alone, before the explosion of offshore tax shelters, the IRS estimated
it was losing annually as much as $354 billion due to tax evasion. The
figure is no doubt in the $500 billion range today.
The point is that closing just half the tax shelters and loopholes responsible
for the $500 billion annual tax revenue loss would generate an additional
annual flow of $250 billion with which to finance single payer health care.
In addition, real measures could be taken to force the repatriation of
some of the stock of the $8 trillion now squirreled away by corporations
and the wealthy in the Caymans and other island tax shelters. Not all that
$8 trillion is probably U.S. from multinationals or U.S.-based trusts.
Given the global distribution of wealth, however, it is safe to assume
at least $4-$5 trillion of it is U.S. based. The forced repatriation of,
once again, just half that $4 trillion, i.e. $2 trillion, could be directed
into special accounts in the Social Security trust fund which, if invested
at 10 percent, would produce an additional flow of $200 billion a year
to finance single payer universal health care. Mandatory jail sentences
for wealthy trust fund administrators who failed or refused to comply would
ensure cooperation and repatriation of the funds. Instituting 100 percent
tariff penalties and/or 100 percent quota limits on multinational corporations
similarly sheltering offshore with the intent to avoid U.S. taxes would
no doubt also prove sufficiently convincing.
Based on the above conservative assumptions, a flow of another $450 billion
a year could thus be generated from major structural reform of tax shelters
and associated loopholes. This revenue flow adds the total available for
financing single payer health care to $1.35 trillion, or now $150 billion
more than the $1.2 trillion initially estimated.
5. Institute a 10 percent Surtax on Corporate Profits
Corporate profits in the U.S. are at historic highs for the post-World
War II period. Profits have risen double digit percentages every quarter
for the past three and a half years. Reported retained profits are now
in the $500 billion range. A retained profits surtax of 10 percent would
therefore raise another minimum $50 billion a year.
6. Levy a 50 percent Tax Penalty on Unreported Profits
Reported retained profits is only part, and probably the lesser part, of
the picture. Estimates by the Boston Consulting Group recently were that
as much as $1.5 trillion in unreported profits are now held offshore. In
late 2004 Congress passed an 800-page omnibus corporate tax cut bill. In
it was a proposal to reduce the tax rate for corporate profits held offshore,
from the normal 35 percent rate at the time to only 5.25 percent. The idea
was to entice the payment of at least some taxes. The repatriated tax profits
at 5.25 percent was conditioned on the money being used by corporations
to create jobs in the U.S. In actual fact, however, most of it was used
by companies in 2005-06 to buy back stock and acquire other companies.
The amount held offshore in 2003 was estimated at around $700 billion.
The Boston Consulting Group’s estimate indicates that level has now risen
to twice as much. In question are both overseas profits made by U.S. corporations
on investments already outside the country, as well as corporate shifting
and transfer of earnings made in the U.S. and then diverted to offshore
subsidiaries in order to avoid U.S. taxes.
A severe penalty of 50 percent on profits diverted and/or earned and held
offshore by U.S. multinationals would likely generate a reasonable level
of repatriation, as well as penalties. Noncompliance would be supplemented
with criminal tax evasion jail sentences for CEOs and senior managers,
as well as penalties prohibiting the import of the violating corporations’
products to the U.S.
Partial repatriation and penalties would produce a combined additional
annual income source of $100 billion.
7. End All Corporate Welfare and Direct Tax Subsidies
Many U.S.-based corporations, in particular those in aircraft manufacturing,
banking, technology, telecommunications, and pharmaceuticals pay no corporate
income tax at all. In fact, they are the recipients of negative taxation—that
is, direct subsidy payments from the U.S. government amounting in many
cases to more than $1 billion each. In virtually all cases, moreover, these
are corporations registering positive profits in the year of the subsidy.
This corporate welfare amounts to around $40 billion a year, according
to various sources. An end to the practice would generate another flow
of that same amount which might be directed to the public investment alternative
of single payer health care.
From the foregoing it is clear the amount raised from the above seven measures
produces a total annual flow of more than the required $1.2 trillion. In
fact, the total thus raised is approximately $1.540 trillion.
The seven measures for financing single payer universal health care could
raise a total financing flow of at least $1.6 trillion a year. The excess
of $400 billion a year provides a significant contingency surplus to cushion
any cycles in the economy that may result in short-term declines in tax
revenue flows. The annual excesses of $400 billion might be accumulated
in a special fund, applied to improving social security retirement benefits,
or used to improve and extend prescription drug benefits for all citizens—not
just some of the retired as is now the case with the current prescription
drug benefit. An annual surplus of $400 billion would just about enable
the extension of prescription drugs to all citizens, not just retirees.
The above list is certainly not exhaustive. Additional sources for financing
single payer can also be identified. For example, taxes on capital and
investment outflows from the U.S., which currently range around $400-$500
billion a year. Taxing capital flows in general is further necessary to
stem the tide of disinvestments in America that has been growing in momentum
over the past decade. We are witnessing today, for example, the virtual
dismantling of what’s left of the manufacturing sector in the U.S. and
its shipment offshore, mostly to Asia. Other areas of the economy, in professional
services and technology R&D, are beginning to experience the same.
What has been proposed is a reclaiming of that wealth in order to fund
public investment in single payer health care. It is essentially a reversal
of the more than $1 trillion annual shift in relative income that has been
the consequence of corporate and government policies since 1980. It is
simply a restoring of the tax structure that has been radically restructured
from the right wing since the 1970s and turned by the wealthy and corporations
into a means for redistributing income in the U.S.
Jack Rasmus is the author of The War At Home: The Corporate Offensive From
Ronald Reagan To George W. Bush, Kyklos Productions, 2006; and the forthcoming
From Us To Them: The Trillion Dollar Income Shift.