By Sean Flynn
Inland Empire Economist
The current Federal tax code runs to 74,000 pages—which makes it far too complicated to be effective, let alone fair. So when Congress announced that it was working on tax reform, I was excited by the possibilities.
Unfortunately, the proposals unveiled by Congress over the past two weeks have been very disappointing. There are some good points—like reducing the tax burden on millions of local businesses and increasing the standard deduction to help low-income workers. But the proposals keep most of the complications while at the same time failing to deliver on middle-class tax cuts. Families making between $30,000 and $75,000 per year would see a net increase in their federal taxes of about $230 per year.
Things get even worse when we look at the proposed changes to the state and local tax deduction, or SALT. Under current law, taxpayers can deduct their local income, sales, and property taxes from their federal tax bills. In San Bernardino County, nearly 31 percent of federal tax filers utilize the SALT deduction. But the Senate bill kills SALT entirely, while the House bill limits it to just property taxes. So Congress is poised to eliminate or slash the only federal deduction that helps to compensate Californians for having to endure the nation’s highest state and local tax burden.
Once we consider the potential loss of the SALT deduction and the $230 tax increase facing middle-income families, the tax proposals coming out of Washington look like a very mixed bag indeed. But it’s at this point that we need to ask: Why can’t Congress do any better? Why should anybody’s taxes have to go up at all? Why can’t Congress deliver on its earlier promises to slash taxes for all taxpayers?
The fundamental answer is that Congress has a spending problem. It can’t cut taxes for everyone without first figuring out a way to drastically cut spending.
So I would like to bring something new to the table. If you look at government budgets over the past few decades, they have been hit hard by skyrocketing healthcare costs. If you could get those costs under control, you would free up the money necessary to finance lower taxes for everybody.
Fortunately, there are proven healthcare reforms that can cover preexisting conditions and deliver universal access to high-quality healthcare while slashing healthcare spending. If we implement them, we as a country could save over $2.1 trillion per year—enough to save Social Security, balance the federal budget, and still have over $1 trillion per year to finance anything from across-the-board tax cuts to increased spending on infrastructure and education.
As just one example of what is possible, consider what the State of Indiana has achieved with just one small adjustment to its Medicaid system of government-provided health insurance for those in need. By simply embracing free market principles through empowering participants, it has cut Medicare expenditures by 11 percent.
Compared with people on traditional Medicaid—who have no incentive to shop around—the participants in the Healthy Indiana Plan cut back on spending by nearly 35 percent without any reductions in preventative care or health outcomes. That reduction in spending is so large that it more than pays for the $1,100 per year each recipient is given in their health savings account. Hence the 11 percent net savings compared to traditional Medicaid.
If the Healthy Indiana Program were rolled out nationwide, we would save nearly $60 billion per year. Additional reforms like price transparency, forcing insurance companies to compete, and freeing up the wholesale pharmaceuticals market would save over $2 trillion more.
So if Congress wants to get serious about tax reform, it should begin by fixing our incredibly costly and wasteful healthcare system. Unfortunately, our representative in Congress, Pete Aguilar, has stood on the sidelines for both healthcare reform and now tax reform. Aguilar’s refusal to engage on these important issues demonstrates that he’s either incapable of offering solutions or he believes Inland Empire families should pay more in taxes and be forced to suffer through mounting healthcare premiums and porous coverage. Perhaps it’s both.
We need a representative in Congress who will offer innovative, bipartisan solutions that can influence the process and affect policy. Anyone can sit on the sidelines and complain, but in a region like ours that’s crippled by poverty, high unemployment, and over taxation, we need real leadership and real reforms.