Health care reform and the end of abortion

Got your attention? Good. There are two ways to consider this topic, both of which are equally possible. The first is the nightmare scenario for the pro-choice movement. In the nightmare scenario, Catholic hospitals expand in many parts of the country and, armed with a conscience clause, provide health care but not abortion services. In addition, these hospitals form an HMO system to compete with other carriers - without offering abortion services. If they grow large enough and get cheap enough, abortion won't be covered under any insurance plan. Combined with a government option which also excludes abortion services, the trend could get pretty bad for abortion providers. This is a reasonable approach, but it is quite heavy handed and, on its own, would simply herald the return of the back alley and self-induced abortion.

There is another way to consider this topic and it has to do with tax reform. Currently, the Congress is desperately trying to find a way to fund health care without breaking the bank. Pressure is building to exclude Medicare as a funding source (even if doing so would not impact health care at all). Eventually, some type of tax reform will be necessary. There are enough fiscally conservative Democrats in the Senate to prevent hitting the rich too hard over this - which is probably a good thing, since broad based health care reform should come from a broad based tax, saving tax increases on the rich for paying down the debt - which will be vital as the baby boomers age.

The kind of broad based tax I am talking about here is similar to a payroll tax, but not exactly a payroll tax. Len Burman, the former head of the Brookings/Urban Tax Policy Center proposed a Value Added Tax, along with the conversion of income taxes at the 15% rate (with a 25% rate for rich people) into what basically amounts to a payroll tax with automatic filing and the automatic paying of subsidies to the poor. (wealthier people would still file). He believes that people will accept a VAT if they no longer have to file taxes and if the VAT covers health care reform. Of course, his reform also removes the deductibility of insurance for businesses and channels all health care spending through the VAT based system. Michael Graetz of Yale Law School also proposes a VAT, with prebates being distributed as a refund against payroll taxes and a $50,000 floor for individuals and $100,000 floor for families for the personal income tax - with the retention of certain popular deductions for this tax, which would be set between 20% and 25% of high income.

I could live with both of these plans, but I think I have a better one. This plan has a feature which would make it easier for business to deal with, more closely matches spending with financing and is useful in actually reducing the abortion rate by about 75%. Still with me?

What I propose is an expansion of the Business Income Tax to all business types, including sole proprietorships and partnerships and the separate filing of high income personal income taxes, with floors of $75,000 for individuals and $150,000 for families. This tax would replace the corporate income (or profits) tax, payroll taxes and all taxes collected at the 15% and 25% income tax rates, as well as the lower 25% of all of the higher rates. In order to make the rate seem lower, there would be a Value Added Tax, which would be paid directly by consumers and would cover discretionary military and civilian spending (not inclusive of military retirement).

The business income tax would cover entitlements now funded under military retirement, Social Security, Medicare, Medicaid, SCHIP, TANF, Food Stamps, Housing Assistance, the Earned Income Tax Credit, the Making Work Pay Credit, the personal exemptions, the Child Tax Credit, Education Credits, the home mortgage deduction, the property tax deduction and Health Insurance Deductions and Credits. Most of the subsidies for the poor, as well as the various tax credits for families now paid through income taxes would be transformed into an expanded refundable tax child tax credit of at least $500 per child or dependent per month. This is easily funded by eliminating the home mortgage and property tax deductions and the personal exemption. In order to assure that low wage workers aren't paid entirely from tax credits, the minimum wage would be raised to $12 per hour (which removes the need for exemptions for working people and the making work pay credit). TANF recipients would be required to attend school, either for vocational training, college or for basic literacy. Instead of receiving food stamps and other entitlements, they would get the same child tax credit and provider sponsored health care as everyone else. Note that states would also shift to a similar system and would also have a child tax credit large enough to bridge the gap between the federal credit and the cost of living in their state. Some states would have a very low credit, while others, like the DC/MD/VA area, would have a higher credit.

This scheme has a few advantages. For one, most of the tax collected would be immediately distributed to the employees, rather than to the government (which would be smaller, since most social services for the working poor would come through the Child Tax Credit). The second advantage is that housing tax subsidies for the poor and lower middle class would be shifted from the mortgage credit, which is used predominantly by the more well off (who don't really need it buy that expensive home) to the less well off. This will actually lead to a larger housing sector and a more well balanced one. Finally, given the fact that one's income is more closely tied to one's fecundity, it will lead to less abortion. Students with children will no longer have to make the choice between having kids and pursuing their educations. Families will welcome one more child because the tax benefits of that child will match the expense, especially the expense of more housing. With such a decline in the demand for abortion services, they will become harder to come by, making them less available as a birth control option. Why is this, because businesses demand a certain throughput. With a much lower volume, the number of providers will decrease and in some areas go away altogether. People will also no longer feel they have to wait to marry and have kids, since they will be able to afford to do so without first becoming established in their carriers. Indeed, the way to a bigger house is to have more kids.

How would this system work in a downturn, like the one we are now experiencing (which is also experiencing a boom in abortion)? In a downturn, the government would increase the child tax credit, putting more money into people's pockets and increasing spending. The first tax credit employers would take would be the child credit (before any depreciation credits, research credits, etc) and firms that have child credits larger than their tax burden would pay a lower VAT payment. Note that no specific VAT "prebate" will be necessary, since the Child Credit and the increase of the minium wage will make paying the VAT only a minor annoyance.

Our final loose end is the high income surtax. This would fund overseas and naval military operations, net interest and paying down the debt - especially the debt held by the Social Security Trust Fund. This surtax would also be applied to any inherited cash or inkind income paid during the year, so that no taxes would be paid on the estate until it was received - and then only at a rate between 6% and 15% to 20% at the top end of the spectrum. Rates might even be increased more, as the rich will soon realize that it is better for them to pay more now to pay less interest later. After the debt is payed and military forces are withdrawn from the world stage, the surtax would sunset until needed again for military emergencies.

What does this tax plan yield? A way to fund children, thus stopping abortion, while giving everyone health care, enough exposure to the cost of discretionary government spending to demand less of it (especially pork barrell projects), and a mechanism to pay down the debt with incentives to end military deployments (or at least pay for them). Not bad, eh?