Tax Options for Financing Health Care Reform Page: 18 of 18
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Tax Options for Financing Health Care Reform
Payroll Tax Increases
Another source of revenue would be increases in payroll taxes, either by raising the rates or
raising the earnings ceiling. Burman estimates that an increase in both the employee and the
employer share of payroll taxes would raise about $100 billion in revenue per year. He also
estimates that eliminating the social security earnings cap would raise $84 billion. In the latter
case, some of the savings would eventually be offset by benefit increases unless the earnings were
decoupled from benefits.44
New Revenue Sources: VAT or Cap and Trade
Another possibility for raising revenue is to turn to an entirely new revenue source. Burman, for
example, proposed a 10% value added tax (VAT) which would raise $600 billion. Another option
for an additional revenue source is a carbon tax or the auction revenue from a cap and trade
carbon emissions permit system.45
The VAT, in addition, would be a new tax with all of the administrative compliance problems
associated with such a tax. If very large sources of revenue are not desired, it might not be worth
the administration and compliance costs. It would also be difficult to put into place quickly and
would involve a number of transition and other problems. The carbon tax or cap and trade would
also be difficult to put into place and would involve other important program issues that need to
As with excise taxes, these taxes would be regressive.
Author Contact Information
Jane G. Gravelle
Senior Specialist in Economic Policy
44 Leonard E. Burman, Senate Finance Committee, Roundtable Discussion on "Financing Comprehensive Health Care
Reform," May 12, 2009. Witness statements posted at http://finance.senate.gov/sitepages/hearing051209.html.
45 Since taxes will be passed on to consumers, refunding revenues to producers would create a windfall; hence these
revenues could be available for other uses.
Congressional Research Service
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Tax Options for Financing Health Care Reform, report, June 19, 2009; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc809116/m1/18/: accessed February 16, 2019), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.