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MC will be financed by consumption taxes. First, a tax will be assessed on virgin materials. It will be assessed on the value of materials used including imports but excluding exported, reused and recycled materials. The virgin materials tax or VMAT is not assessed on the price of the product, just the cost of the basic materials used in the product. Materials to be taxed include petroleum, natural gas, coal, refined metals, industrial minerals, and nonfood biological materials. Materials excluded from the tax are food, water and monetary metals as well as energy used in primary industries to produce and process materials. Industries to be excluded include agriculture, fishing, aviation and international shipping. The tax rate may start out at about 3% on the cost of basic materials and top out at 10%; possibly less for other than hydrocarbons. A 24% value-added tax will be assessed on goods and services including food and health care. A pseudo-VAT of 24% will be assessed on certain government and nonprofit expenditures. The alcohol tax will be set at $20.25 per proof gallon across all alcoholic beverages. The tobacco tax will be set at $3 per pack of cigarettes and the equivalent on other tobacco products.
The consumption taxes will be offset by the following. The federal government will lower the 10% and 15% income tax brackets by 10%. State and local governments will end their sales and gross business receipts taxes.
Create the new supplemental income for families or SIF. It will be $6,000 per child and phased-out above $27,000 in income for a single adult household or $54,000 in income for a two adult household at a rate of 50¢/dollar/household. Allow advances on the SIF to pay for child care expenses. Repayment with interest is required. For adults excluding seniors, the SIF will be $3,600. For single adults, it will be phased out above $3,000 in income at 20¢/dollar/adult. For two adults, it will be phased out above $6,000 in income at 10¢/dollar/adult. For nondependent adult parents, the SIF will be $3,000. For one parent, it will be phased out above $21,000 in income at 50¢/dollar/parent. For two parents, it will be phased out above $42,000 in income at 25¢/dollar/parent. For seniors, the SIF will be $9,850. For single seniors, it will be phased out above $1,000 in income at 45¢/dollar/senior, stopping the phase-out at $14,000 in income and recommencing above $26,000 in income at 8¢/dollar/senior. For two seniors, it will be phased out above $2,000 in income at 22.5¢/dollar/senior, stopping the phase-out at $28,000 in income and recommencing above $52,000 in income at 4¢/dollar/senior.
Add a credit for child care expenses. The credit for paid child care expenses will be the lesser of 34% of expenses or $1.70/hour/child. The maximum will be $3,400 for each child ages 0-4 years.
The 2.8% employer-paid Medicare payroll tax and the 1.2% employer-paid disability payroll tax will be canceled. Medicare will cease collecting Part D contributions from the states.
This figure summarizes the financing for Medicare Choice along with select data on taxes. The base year is 2008. The consumption taxes along the top of the figure fund MC. Those taxes are the VAT levied on the private sector, the pseudo-VAT levied on the public sector and the VAT levied on the virgin materials tax. Altogether, the VAT collects about $1.97 trillion in revenue. The virgin materials tax or VMAT collects $15 billion in revenue. And the “sin” taxes on alcohol and tobacco collect about $55 billion. Supplemental Income for Families or SIF refunds about $538 billion of the revenue. The credit for child care expenses will spend about $44 billion. Basic health insurance spends $1.17 trillion. Long-term care will spend about $151 billion. Disability will spend about $81 billion.
The tax rates shown in the box were added for reference and reflect the tax rates in effect after all reforms are implemented. Income tax rates will be reduced to a maximum of 18% with the two lowest tax brackets set to 0%. In the higher tax brackets, non-labor income will be taxed at rates 7.0% higher than labor compensation. Labor compensation will be subject to a 7.0% payroll tax after all reforms are implemented, so the final federal tax bill will be the same whether it is labor compensation or non-labor income.
The goal of MC is to get control of health care costs in America while preserving and perhaps improving quality. The government’s main role is to set the health care system’s framework and finance BHI. All of the rest of the interactions are made by private entities: insureds, insurers and providers. The beginning of this presentation featured graphs with health care costs soaring higher and higher over time. The Medicare graph broke rising costs into the cost due to an aging population – which was small – and rising costs due to higher spending per person – which was large. The same conceptual graph is displayed here. The proposed initial changes are estimated to reduce costs by approximately $640 billion per year through reduced administration costs due to the electronic medical record system; elimination of non-core mandates; medical liability reform, including defensive medicine; regulatory reform; the elimination of fraud; direct provider contracting; concessionary pricing for medicines and medical devices; and health care employer premiums and payroll taxes saved. Going forward, additional money can be saved through enhanced competition and innovation. The objective is to reduce or eliminate the rising per person costs, leaving only the unavoidable rising costs due to an aging population.
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