Tax reform is once again in the air, with promises that taxes will be cut. House Speaker Paul RyanPaul Davis RyanPaul Ryan researched narcissistic personality disorder after Trump win: book Paul Ryan says it's 'really clear' Biden won election: 'It was not rigged. It was not stolen' Democrats fret over Trump-district retirements ahead of midterms MORE (R-Wis.) is vowing to cut a host of taxes and to repeal the hated alternative minimum tax. Right on! However, there is an unspoken elephant in the tax reform room. Few in the political class seem willing to address the biggest tax of them all: government spending.
Whenever the government expends resources, whether it is on fixing our roads, defending our shores, or healing the sick, those resources have to come from somewhere. This is the inescapable truth: Somebody has to pay for the goods and services commandeered by our government. The only issue is who will pay for them and when.
This stark reality is as real and inescapable as the law of gravity. If taxes are cut, then either spending has to be cut, or other taxes have to be raised. One of the biggest and fastest growing parts of government spending is the healthcare monster that is devouring our economy.
Fortunately, there are some fixes to the tax code that can do a lot of good to control healthcare spending while raising badly needed revenue for our deficit-riddled government. Here are some ways to reign in government spending and pay for tax reform at the same time:
End the tax break for discriminatory health insurance plans
Our tax code allows corporations to deduct what they spend on health insurance for employees. This benefit for employees is not taxed under our tax code. It just so happens that employed people are younger, healthier and less expensive to insure than the sicker people who cannot work. The current system permits corporations to carve out special plans for their cheaper-to-cover populations, leaving everyone else to fend for themselves in a much sicker and more expensive risk pool. This is what has led to the massive problem in our health insurance system.
The solution is simple: Only permit corporations to deduct health insurance expenditures for plans that are open to everyone in the community on the same non-discriminatory terms. Let Apple or Exxon offer any kind of health plan it wants to its workers as long as anyone in the community can buy in at the same price. If a company wants to continue to provide a custom discriminatory plan, they should be allowed to do so, but without the tax breaks they currently enjoy.
There should be no deduction for discriminatory plans, and employees should rightfully pay income taxes when they receive discriminatory health benefits from their employers. This will lead corporations to demand and insurers to offer more uniform plans that are open to everyone in the community on fair terms. This will make it easier for those outside the corporate safety net to purchase insurance at affordable rates. With more affordable and available insurance, there will be no need for the hated mandates.
Tax fraudulent medical bills
One of the major scandals in healthcare today is the practice of medical billing at ridiculous list prices that bear no semblance to reality. This practice has turned medical care payments into an expensive oriental-rug-bazaar negotiation. The real price is treated as a state secret. Yet, the bill collecting hounds try to collect extortionate prices from the underinsured while the insured pay far less through their insurance.
As a result, medical markets for non-emergency care function very poorly as true prices are not visible. This results in a highly-discriminatory and unfair medical care system in which different people are charged different amounts for the same procedure. The lack of price transparency leads to extremely high administrative costs as patients, providers and insurers argue for years over the price of a procedure.
Imposing a 100-percent tax on the difference between the billed price and the negotiated price that a provider accepts from payers for the same medical procedure will abolish this cruel practice. To avoid compliance hassles, providers could be given a safe harbor if they report all of their accepted prices for procedures to a public database so that everyone could see the real prices accepted for various procedures.
Price transparency will promote price competition for non-emergency care and thus make healthcare more efficient and affordable to all. When patients, providers and payers can observe the real price, they can make more cost-effective decisions when prescribing and consuming care. As most health expenditures are for non-emergency care, this will lead to a more efficient healthcare system.
We require stock exchanges to reveal prices because it makes stock markets function more effectively. We should require the same of our medical markets. Price transparency will reduce the enormous administrative burden that is part of the health cost explosion by eliminating the massive arguments over prices.
Raise taxes on cigarettes
Cigarettes are proven killers that impose higher taxes on all of us to cover the extra healthcare costs of smokers. Raising cigarette taxes is one way to raise revenue while giving people an incentive to lead healthier lives. It is well known that higher cigarette taxes reduce cigarette consumption.
Tax junk food
The obesity epidemic is killing our country, driving down life expectancy while driving up our healthcare costs. The sad reality is that sugary junk food is cheap. Making junk food more expensive by taxing it will raise needed revenue and also help us eat in a much healthier manner.
The above taxes will go far to improve our health and our healthcare system. However, if they are effective, they will not raise enough revenue to pay for the other desired tax cuts, because people will change their behavior in the desired ways to avoid the taxes. Here are a few additional “pay for” taxes that are good for the economy as well:
Tax carbon emissions
Just as Roman Emperor Nero allegedly fiddled while the city of Rome was burning, President Trump may well go down in history as the president who fiddled while the earth’s climate burned. The evidence is pretty clear that our planet is heating up — with catastrophic consequences. We have the ability to geo-engineer our planet to reduce these consequences.
Putting a tax on carbon emissions is a very simple and effective way to reduce carbon emissions and slow the process. Reducing our dependence on carbon-based fuels will also enhance our national security by reducing our dependence on foreign oil from unstable and hostile countries. We survived $140/ barrel oil, so with oil now around $40 we can survive — even thrive — on the modest increase in energy costs from a carbon tax. Even General Motors and ExxonMobil are in favor of a carbon tax.
End the tax break for short sellers
When short sellers borrow and sell a stock, they get to use the cash immediately if the stock goes down. However, they do not have to pay taxes until they buy back the stock to close out their short position. This gives the short sellers an incentive to delay closing out the position as long as possible while continuing to spread negative news about their target.
A fairer system would mark all short positions to market at the end of each year and assess taxes on the gains or losses at that point. This would better align the timing of the receipt of the gains with paying taxes on the gains and reduce the incentive for short sellers to stay short forever and continue to badmouth companies.
James J. Angel, Ph.D. and CFA, is associate professor of finance at the McDonough School of Business at Georgetown University.
The views expressed by contributors are their own and not the views of The Hill.