Now we know how many American taxpayers will be asked to pay for health reform under the new tax rate structure being designed by House Democrats: about 2 million. That would be a bit more than 1 percent of all taxpayers. They’d  be asked to pay an additional $540 billion in taxes over the next 10 years, while those making less than $350,000 would be asked to contribute approximately nothing. Seems fair to me.

According to the draft House bill, starting in 2011 those making more than $1 million would pay a surcharge of 5.4 percent. Add that to President Obama’s plan to restore the pre-Bush top rate of 39.6 percent and the new maximum marginal rate would be an even 45 percent. You can also add a couple of extra percentage points thanks to Obama’s plan to restore the pre-Bush limits on personal exemptions (PEP) and itemized deductions (Pease).

Those making between $350,000 and $500,000 would pay a 1 percent surtax (putting many of them in a new 40.6 percent bracket), and those making between $500,000 and $1 million would face a 1.5 percent surtax and a marginal rate of 41.1 percent.

Starting in 2013, those in the $350,000 to $500,000 bracket would pay an additional 1 percent while those making between $500,000 and $1 million would pay an extra 1.5 percent, giving them a marginal rate of 42.6 percent. Unless health reform saves more money than expected. Then they wouldn’t. Still with me here?

TPC estimates that once the initial surcharge is put in place in 2011, the top 1 percent of earners--those making more than about $550,000-- would pay on average almost $36,000 in extra tax. The top one-tenth of one percent--those earning more than $2.3 million—would have to pony up an average of an additional $280,000, a cut in after-tax income of more than 5 percent.

Btw, there are several other revenue provisions in the Democratic proposal, including a stiff “play or pay” tax on employers that don’t offer health insurance. We’ll sort through those another day.
  
Just to be clear. I have no problem with the very wealthy paying their fair share. And there is a good case to be made that the Bush tax cuts for the rich were excessive, especially in a time of both war and deficits. But this is different.

Of course, money is fungible and any revenues collected from these new taxes will end up in the government’s general fund. But framing matters. If, once the economy gets back on its feet, President Obama and Congress ask everyone to both pay more taxes and swallow some big spending cuts, I’d applaud them. If they ask the top 1 or 2 percent—who have done exceedingly well over the past few decades—to pay still more as part of a program of national sacrifice, I’d applaud them yet again.  

But asking barely 1 percent of taxpayers to finance health reform largely on their own is not only bad tax policy, it is dreadful governance. It is only made worse by the form it would take: raising rates rather than closing loopholes.

I won’t rehash yesterday’s post about the pitfalls of big rate hikes on those who can most easily manipulate their income. Let’s just say I suspect shelters will be hotter than I-phones among the smart set.

The real issue is simpler than that: We all have a stake in health reform. If it is such a good idea, we should all pay our share. If politicians are too scared to ask us all to contribute, maybe their version of reform isn’t so hot.