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THE OMNIBUS TAX, HEALTH AND SAVINGS PLAN
A proposal by the Institute for SocioEconomic
Studies
Overview
The need for socioeconomic reform is manifold.
It includes everything from healthcare to the outsourcing
of jobs. It involves the national debt and tax
simplification, personal saving, and a multitude
of critical problems. Attempting to solve these
problems piecemeal has only resulted in competition
among the nation’s legislators, from both
political parties, as to the relative importance
of each group’s issue of choice.
Analysis of a simplified omnibus approach to all
of these issues reveals spillover benefits. Addressing
the issues together, with an omnibus plan, enables
us to deal with each of them more efficiently and
economically. The final result is both feasible
and attractive on all counts.
The Omnibus Tax, Health and Savings Plan is a
powerful new initiative to replace America’s
complex budget and regulatory process with a simplified
revenue and spending system. This system will conform
to widely held principles of uniformity, fairness,
and progressivity, and will ensure that all Americans
have the resources to meet their basic needs for
health care, education, housing, personal saving,
and charitable giving. First and foremost, it will
restore our citizens’ right to decide for
themselves how to spend these resources without
having to submit to the advice and consent of government.
The Omnibus Tax, Health and Savings Plan would
repeal:
• Federal individual income taxes (including
the capital gains taxes)
• Corporate income taxes
• All payroll taxes
• Self-employment taxes
• Estate and gift taxes
The Plan would:
• Replace managed health care with a Health
Care Allowance
• Guarantee the federal Social Security commitment
In place of these federal taxes,
the Plan would levy an annual flat tax on personal
income less savings for retirement, education,
home mortgage interests, charitable giving, and
state taxes.
The Plan would provide every family with a rebate equal to the flat tax rate
times the federal poverty level, plus a Health Care Allowance.
The annual "Income Less Savings Tax” would
be easy to administer and proof against any form
of manipulation. No professional assistance would
be needed to file the simple one-page tax return.
At the same time, this method of taxation provides
a foolproof method of determining a proper obligation
to the federal government in accordance with personal
financial lifestyle. The tax is flat and yet very
progressive.
TAX-DEFERRED PERSONAL SAVINGS ACCOUNTS
Income may be placed in personal Savings Accounts
(PSAs), similar to IRAs, for tax-deferred status.
Investments and interest from these accounts shall
be returned to the accounts flat tax-free. Withdrawals
from the account shall be subject to the flat tax.
When these accounts are transferred as part of
an estate, their flat tax status shall remain in
effect.
HEALTH CARE ALLOWANCE
The Federal Government shall transfer to each
family or individual a Health Care Allowance (HCA),
the amount of which shall be based per capita on
the categories of Adult or Child. This Allowance
will be held tax free in a Medical Savings Account.
Medical and prescription drug costs may be paid
from this account by with a Medical Savings Account
debit card. Any unused balance left in the Medical
Savings Account at the end of the year would remain
tax free, and may be transferred to another PSA.
If it is used for any other purpose, it is taxable.
Health care (including prescription) costs that
exceed the Allowance will be covered by federal
catastrophic insurance.
WHY A HEALTH CARE ALLOWANCE IS ESSENTIAL TO THE
OMNIBUS PLAN
From its inception, America has been a free enterprise
society, where products and services compete in
a marketplace for the loyalty of consumers. But
there is no "marketplace" for health
care. For most Americans, medical services are
virtually free and decisions on producers and prices
are left to outside third parties. Even in cases
where individuals choose or are forced to purchase
medical care on their own, the options available
to them are dictated by the perverse regulations
of the system. Instead of providing a forum for
buyers and sellers to freely interact, our healthcare
system has become a prison, where consumers are
offered limited services at a fixed price, and
where the alternative is no services at all.
Employer-financed health care has never been nearly
as good a deal for workers as is popularly believed,
and it is only getting worse. Workers are now expected
to pay for a substantial (and growing) portion
of their benefits through increased premiums, higher
deductibles, and co-payments. According to Families
USA, premium costs borne by workers rose by 35.9
percent from 2000 to 2004, nearly three times faster
than the average U.S. earnings during the same
period. Even after paying more, workers still may
not get the health care they want and need, because
of restrictions on coverage or a limited physician
roster. In addition, the most attractive employees
often cannot leave jobs for better employment because
they cannot transfer their health insurance. The
resulting "freezing" of worker mobility
between jobs reduces employment efficiency.
America has no equal in our productive technology,
our ability to realize scale economies, and our
managerial efficiency. These traits result from
our commitment to free enterprise and open markets–principles
that are totally lacking in our bureaucratized,
anti-competitive, health system.
The Health Care Allowance is based on research
conducted in 1997 at Columbia University to evaluate
a plan of the Institute for SocioEconomic Studies
that would have replaced the welfare and other
entitlements with a monthly income supplement of
$400 per adult and $200 per child. In their report,
the researchers concluded that tax rebates can
fulfill the conservative goal of reducing government,
give the poor a ladder out of poverty and provide
meaningful tax relief to the middle class. The
Health Care Allowance would be used for health
expenses, and would be funded by cashing out existing
health programs.
The Plan changes the relationship between the
patient and the medical profession. Existing health
services are granted as a dole. The patient has
no choice. The most certain characteristics of
today’s health care are inconvenience, restriction
of choice, and long waiting lines. Often the value
of time wasted in waiting rooms is larger than
that of the physicians’ time. Concurrently,
the physicians are abused by the system. Wasted
dollars are spent on duplication of health devices
and regulation of services and fees. Regulation
of health practice has enriched insurers and undermined
the professionalism and morale of medical service
providers. The Plan would create an efficient and
rewarding consumer/provider relationship. The only
successful type of American health care is consumer-managed
private contracting.
ADVANTAGES OF THE OMNIBUS TAX, HEALTH AND SAVINGS
PLAN
The simplicity of the Omnibus Tax, Health and
Savings Plan makes it an ideal vehicle for addressing
the problems of Social Security, savings, and retirement.
The Plan honors the Social Security obligation
and creates tax-deferred PSAs for retirement, education,
and housing. The income from savings accounts for
housing, education, and retirement will also be
tax-deferred in this manner.
The Plan will return basic responsibility for
health care to the individual, restoring the incentive-based
free enterprise system on which our nation was
founded. By minimizing the role of third party
payers, it will allow individuals and their doctors
to concentrate on the best medical care. And, by
lifting the burden of health care costs from business,
it will free American industry and American workers
to re-focus on the qualities that have made them
great—innovation, competitiveness, and productivity.
STATE BUDGET STABILITY
The Omnibus Plan will promote fiscal stability
between state and federal governments. Many of
the aims, purposes, and responsibilities of states,
such as affordable housing, health care, and education,
are also the aims and purposes of the federal government.
The provisions of the Omnibus Plan that encourage
and reward personal saving toward these goals will
serve to lessen budgetary demands on the states.
On the other hand, the ability of states to finance
their various needs will not be impaired by the
Omnibus Plan. A flat tax on income administered
at the federal level does not interfere with the
states’ rights to collect income and/or sales
taxes.
INCENTIVES FOR SAVINGS
The plan has strong incentives for savings, education,
retirement, and home ownership. Such savings accounts
are all deductible from income–as are any
investment returns added to those accounts. The
Plan is based on the individual’s basic right
to provide for the future, rather than government’s
acquired or implied obligation to provide for the
individual. It also has strong incentives for controlling
medical costs, since any portion of the Health
Care Allowance not spent for that purpose remains
tax free and may be transferred to another PSA
or, as income subject to the flat tax, may be spent
on anything needed or desired.
SOCIAL SECURITY
Social Security is a contract that the government
must honor. This obligation should be honored not
only to the elderly, but also to the young, who
have already contributed their Social Security
taxes. The contributions of these younger beneficiaries
will be sustained by contributions to the Social
Security Trust Fund.
Social Security must not follow the same dubious
path as Medicare, which has been hamstrung by complex
new choices and conditions, including an ineffectual
option for prescription drug coverage that have
resulted in the disastrous health care situation
we are facing today.
NATIONAL DEBT AND BUDGET DEFICIT
Savings from the cash-out of existing bureaucratic
programs will reduce federal budget costs, allowing
the Omnibus flat tax rate to be set at a level
the populace can sustain, while at the same time
contributing to long-term reduction of the budget
deficit and the national debt.
REDUCED MARKET PRICES
By removing the burdens of health care and taxes
from industry, and by making capital formation
more attractive, the Omnibus Plan will increase
market competition and reduce prices. These lower
prices will result in more favored foreign trade,
less outsourcing of jobs, reduced unemployment,
increased production, and more industrial exports.
FLAT TAX
The flat tax aspect of the Plan is both simple
and fair. Progressivity is assured by offsetting
the amount of the tax by the tax rebate. For the
poor, the rebate wipes out their entire tax obligation.
For the middle class, it provides a significant
reduction in tax rate. Compliance is guaranteed
by the simple subtraction of savings accounts from
income.
REDUCED BUREAUCRACY
The Omnibus Reform Plan replaces many of the functions
of the Department of Health and Human Services
(welfare, Medicare, Medicaid) and the IRS. Thus,
bureaucracy will be greatly reduced. The additional
income of the monthly tax rebate and the Health
Care Allowance will be a major step towards the
elimination of poverty.
HOME OWNERSHIP
The Omnibus Plan exempts home mortgage
interests from the flat tax, increasing the incentive
for home ownership, via tax-deferred Personal Savings
Accounts. This in turn enhances retirement security
and stimulates housing production.
JOB MOBILITY
Job access and employment efficiency are considerably
reduced by the existing ties between employment
and health care. Eliminating this restriction on
job mobility is essential to maximizing employment
efficiency and productivity for both employers
and employees.
WORK INCENTIVE
The incentive to work in a free enterprise society
is the payment for labor, less the benefit of not
working. The accumulation of the many social welfare
benefits that are income-indexed often makes their
incentive marginal or negative. The Tax Rebate
and Health Care Allowance, combined with the tax-deferred
Personal Savings Accounts, remove disincentives
from low-income jobs and help to raise incomes
above the poverty line.
It is common for low-income workers to work "off
the books" to avoid the loss of social benefits.
The Tax Rebate provision of the Flat Tax, combined
with the tax-deferred Personal Savings Accounts,
will lift even minimum incomes to the level of
strong incentives to work “on the books.”
IMPROVED INTERNATIONAL RELATIONS
The Omnibus Plan would promote international trade
by creating a realistic marketplace for world products.
America’s relationship with its trading partners
would be vastly improved, helping to stabilize
international relations and protecting the value
of the dollar.
12/10/04
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