Smart Bombs: Taxation without misrepresentation

“Keep government out of my Medicare” – Sign at a political rally

President Barack Obama is urging people to send tweets to their congressional representatives with the hashtag #my2k, which represents the $2,000 he claims the average taxpayer will have to fork over if Congress does not agree to lower taxes for 98 percent of Americans.

And thus opens another chapter in this country’s 236-year history of treating taxation like a shipment of nitroglycerin on a pockmarked road. In the Nov. 26 edition of the New Yorker, Harvard history professor Jill Lepore explores this perilous journey in a timely article. From the beginning, our leaders have done an excellent job of denouncing taxes while doing a terrible job of explaining their purpose. This has enabled Americans to ignore the gaping cracks in the fabled façade of rugged individualism.

The founders rejected income and property taxes: the former because they were out of the King George playbook; the latter to avoid that awkward moment of government capitalizing on slaves as property. So, they leaned on taxes, er, tariffs, on goods from other countries.

Perhaps the most telling moment of decoupling taxes from their purpose was the New Deal, where government was expanded but the word “tax” was still uttered with trepidation. As Lepore notes, President Franklin Roosevelt’s advisers urged him to avoid terms such as “inequality” and “redistribution.” Thus, Social Security was “insurance.” At the outset, many people paid little to no “premiums,” but they still got benefits. Since then, Social Security has been expanded to include programs such as Supplemental Security Income, which are welfare but rarely called that. Meanwhile, other assistance for the poor, such as Aid to Families of Dependent Children, has always carried that label.

When Medicare was passed in 1965, a payroll tax was grafted onto the existing one for Social Security to pay for Part A (hospital care, nursing care). This is what people think of when they say they’ve prepaid their Medicare. However, Part B (doctor visits, lab tests, surgeries, etc.), Part C (Medicare Advantage) and Part D (prescription drugs) are substantially subsidized with general revenues.

So it’s welfare. Say it loud. Say it proud. Similar to the help a single mother gets to feed her children; similar to Medicaid, the health care program for the poor. The Urban Institute calculates that a typical Medicare beneficiary only covers one-third of the cost of their medical care. The rest comes from redistributing the wealth.

But Medicare recipients have been told a different story. On Thursday night, I watched former Vermont Gov. Howard Dean on MSNBC bat down the suggestion that Medicare be part of the nation’s “fiscal cliff” discussion. He said it was something seniors had already paid for. That’s the political tale, and both parties have spun it.

I don’t think there’s anything wrong with Medicare being welfare. I think its construction is genius. When we are at our healthiest and most productive stages of life, we are “givers.” When we have the greatest need, we are “takers.” But it’s destructive to build a false narrative that Medicare is prepaid. Instead of raising the taxes needed to pay for this worthwhile giant, we get lost in the false hope that cutting smaller programs will suffice.

On Friday, the New York Times reported that across all income categories Americans had a lower tax burden in 2010 than they did in 1980. It’s been 26 years since the federal government raised the payroll tax rate to increase Medicare funding. It’s been 19 years since it raised income or gasoline taxes. Instead, taxes have been cut, and the government has whipped out the credit card to keep things running.

If Obama is successful in preserving the Bush tax cuts for 98 percent of taxpayers, he should affix a short expiration date. More Americans, not just the richest 2 percent, will have to pay higher taxes when the economy recovers. Medicare and many other government services are worth it.

Tweet that to your representatives, with the hashtag #billstopay.