Some Ideas for the Congress on Healthcare Reform and A new Tax Policy

The Congress cannot seem able to come up with a cure for the Affordable Care Act or for tax reform. Here is how I would deal with these problems.

I have recommended in a recent blog a way to fix the ACA. It is so obvious but no one seems to figure it out. Briefly, it would make enrollment voluntary, and allow insurers to reject applicants for medical reasons. Those rejected would immediately be eligible to the public option which would be a federal program so the states could not deny the expansion as 19 states are doing now. There would be a share of cost depending on the applicant's income. It would raise the number of people getting public assistance by maybe five to ten million. Private insurers would then have to compete for their share of healthy applicants by ending deductibles and offering a scaled down version of coverage. The extra cost incurred by the option could be offset by getting drug makers to reduce their charges and by not having to pay insurers billion to cover their costs. This way every American who want coverage will have it.

I have had a mutual friend hand deliver my suggestion directly to Nancy Pelosi, the actual creator of this failed system. I can only hope that she follows up on it.

There is also a pretty easy solution to making the federal tax code both simple and fair. 

First eliminate all itemized deductions and credits. The rich benefit most from these. I would replace them with a $40,000 standard deduction for families and $20,000 one for individuals. I would have five or six tax brackets ranging from 10% to 35%, which would apply to those earning $1 million or more. There could be a surtax of 5% for those earning more than $5 million and a 10% surtax for those earning more than $10 million. Those earning more than $1 million would have a straight tax with no other brackets. So a family earning $2 million would pay a straight 35% or $700,000.

This would make calculating one's taxes easy. They would pay on all their W2 and 1099s. Earned income workers would be allowed to deduct their FICA withholding. All sources of income would be equally taxable be they Social Security benefits which are now only taxable at 85% and dividends, now taxed at 15% or 28%. The tax system would so simple that the IRS could send the taxpayer the bill or the people could compute it themselves in a matter of minutes.

The IRS which is understaffed could then focus on self-employed income which would have itemized deductions, and corporate taxes which would also have itemized deductions with the net income taxed at 15%. Corporations don't really pay taxes, the cost is paid for by consumers and the shareholders.

Depending on how the brackets are defined, we would gain billions on these changes.

The only ones hurt by this plan would be the tax preparing services who would focus on helping the self employed and smaller companies.