I have a few thoughts on this letter from 21 freshmen Democrats, including three Virginians (Gerry Connolly, Glenn Nye, Tom Perriello) on how to pay (and how not to pay) for health care reform. 1. Although The Hill newspaper characterizes the 21 freshman Democrats who signed the letter as "opposing their leadership's plan to raise taxes to finance a healthcare overhaul," that's not really true. Actually, what the freshmen Dem's write is that they are "concerned that the proposed method of paying for healthcare reform...will negatively impact small businesses." Key words here: "method," "small businesses." In short, this letter is not about blanket opposition to "their leadership's plan to raise taxes to finance a healthcare overhaul," but instead about the specific method by which revenues are raised under the plan.
1a. The specific concern raised in this letter is that family-owned and "closely held midsize S-Corp businesses" would be put at "a major tax disdvantage to their larger corporate competitors, which could continue to enjoy the favorable 35 [percent] corporate tax rate." In short, what the freshmen appear to be saying here is, "fine, raise taxes, but not disproportionately on small businesses, please."
2. I would point out that the concern over raising taxes on small businesses most likely comes about because many of those are Subchapter S corporations, where the tax rates could rise to a marginal rate of more than 50%. Here I'm confused; if a Chapter S corporation doesn’t like the higher tax rates, couldn't it reincorporate as a Chapter C corporation and get the better rates? Is there a tax attorney in the house? How about the House? :)
2a. Another way of putting this is that it's a business tax equity issue between S Corporations and C Corporations. The effect of the expiration of the Bush tax cuts and the proposed surcharge could be seen as placing a greater burden on S Corporations than on C Corporations. In other words, Microsoft could end up paying a lower marginal tax rate than the owner of a small business that's chartered as an S Corporation. That doesn't seem right and probably needs to be addressed here. If that is the point the 21 freshmen Dem's are making, I agree with them.
3. What I do not like in this letter is the "Club for Growth," Chamber of Commerce, Republican talking points on taxes and small businesses. For example, I truly wish that Democrats would ban the phrase "tax relief" from their vocabulary, because it totally buys into the Grover Norquist talking point that taxes are a burden, not the price we pay to live in a prosperous, free nation with great services (e.g., health care) for all Americans. Also, the glorification of small businesses here is a bit much. Yes, small businesses are an excellent thing, quintesentially American, and one of the keys to what makes this country great. And yes, small businesses account for a significant percentage of "new jobs" in this country. But here's the rub: small businesses also account for a significant share of the of job losses. Why? Because small businesses are almost by definition risky and prone to failure. In fact, according to the Small Business Adminsistration, "the chance of success is slim" in small business, with "roughly 50% of small businesses fail[ing] within the first five years." The SBA also says that just 31% of small businesses survive at least seven years. In other words, making a small business work over the long haul is very difficult, and most fail within a few years. So yes, small businesses create a lot of jobs, but a lot of those jobs go away when (half or more of) the small businesses go belly up. Again, let's celebrate small business and entrepreneurs, but let's not get all Grover Norquist/faux-misty-eyed about them.
4. The bottom line is that to pay for health care without exploding the budget deficit (and the debt), we need to raise revenues (aka, "taxes") somehow or other. If we keep ruling out options on how to pay for things we want (like universal health care), we simply won't be able to pay for it. So, I ask the Democrats who signed this letter a simple question: how do you propose paying for urgently needed health care reform? Do you want to raise taxes on rich people? On everyone? Do you want to tax health benefits? Do you have any other ideas for raising revenues here and not exploding the deficit? The fact is, like it or not, taxes will inevitably take money away from someone in order to finance a society-wide goal, like universal health care. There are no free lunches; either this is worth paying for or it isn't. So, which is it?
5. Remember, the vast majority of Americans will benefit from reforming the health care system. Working people. Small business owners. The middle class. People with pre-existing conditions. People without any health insurance at all. We could go on and on. Also, keep in mind that the current situation costs far more money than it needs to, in part because so many people without adequate health insurance put off seeing a doctor until the illness is severe, at which point it costs a lot more money to treat it. That hurts everyone.
6. If these freshman Democrats are concerned about small business being unfairly treated vis-a-vis large corporations under the health care reform legislation making its way through Congress, why not take the lead and propose something to close
that gap? For instance, what about raising the corporate tax rate and/or cracking down on corporate tax heavens as a way to help finance healthcare reform?
7. Finally, a note on the politics of the matter. Last night on the PBS NewsHour, Mark Shields explained the situation extremely well.
If you're a House Democrat, 49 of them represent districts that were won by John McCain in 2008...you've already cast one difficult vote on climate change, ok, that was a tough vote. Now, what you're being asked to do is to cast a vote that includes a $554 billion tax increase. OK, even though it's on the richy-riches...Daddy Warbucks'es, it's still a tax increase. And we're still waiting to see if the Senate is ever gonna cast a tough vote on anything.That last point is a good one; when on earth is the "slower than a wounded sea slug" Senate going to act? And I've asked this before but still don't fully understand: why on earth does everything need 60 votes in the U.S. Senate, when last I checked there were 100 Senators, meaning that 51 votes passes a bill (actually, just 50 votes are needed, since then Vice President Joe Biden would break the tie in favor of the Democrats).
Yes, I realize that the Senate has this delightful, time-honored procedure known as a "filibuster," but isn't that supposed to be used only in rare cases, not as a regular course of doing business? The fact is, we had an election last November and one party - the Democratic Party - was handed the reins of power in the Congress and the White House. Now, it's time to deliver on what Democrats ran on, including quality health care for all Americans. If Democrats don't do that, 2010 could be a rougher-than-usual midterm election year for the "blue team." On the other hand, if Democrats do deliver, they could put themselves in great shape for 2010, 2012, etc. So c'mon guys, there's no more time to waste; let's get'r done! :)
