Cutting budgets at our expense

July 23, 2009

Gary Lapon analyzes the failure of Massachusetts' health care system--and what could be done about it.

THIRTY THOUSAND documented immigrants in Massachusetts have just been hit with a one-two punch that leaves them paying more taxes for fewer benefits--the latest in a series of attempts to force poor, oppressed and working-class people to pay for the economic crisis.

The new state budget drops health insurance coverage for permanent residents who have had a green card for less than five years; previously, they were covered by Commonwealth Care as part of Massachusetts' 2006 "universal" health care reform.

And, according to the New York Times, "In addition to dropping the immigrant insurance program, Commonwealth Care will save an estimated $63 million by no longer automatically enrolling low-income residents who fail to enroll themselves," which essentially means that thousands of low-income people will go without health coverage they qualify for. This comes on top of significant cuts to services for the disabled, the elderly and the poor.

Massachusetts health care reform, which includes a mandate that residents purchase insurance (enforced by tax penalties) and subsidies for low-income residents, is similar in many ways to what is shaping up as the Obama administration's national health care proposal--which aims to expand insurance coverage while maintaining the role of the for-profit health insurance industry.

State legislators in the Massachussets State House claim there's just not enough money to avoid drastic cuts
State legislators in the Massachussets State House claim there's just not enough money to avoid drastic cuts

With leading health care policymakers like Democratic Sen. Max Baucus stating that any legislation won't cover undocumented workers (see "Look what made it on the table") nor provide full coverage for all, the move by Massachusetts to drop a section of the documented immigrant population is an indication of what we might see on the national level if the Democrats get what they're proposing.

As these 30,000 immigrants figure out whether they should skip needed care, attempt to pay for some of it out of pocket or cut back on other expenses like food and rent, they should be careful to adjust their calculations to account for the sales tax hike (from 5 percent to 6.5 percent) that will take effect on August 1.

The argument coming from Massachusetts politicians in favor of the cuts to health care, education and human services is that because of the economic crisis and recession, there simply isn't enough money to pay for everything, and that although they care deeply about the poor, sick and disabled, sacrifices must--regrettably, of course--be made.

But is there really not enough money to pay for needed services for immigrants? And are sales taxes--which are regressive, in that the poorest pay the largest share of their income and the richest pay the smallest--the only way, or the best way, to increase tax revenues?

ACCORDING TO the National Priorities Project, the wars in Iraq and Afghanistan have cost Massachusetts over $24 billion, more than enough to make up for budget shortfalls without cutting services (the total state budget this year is $27 billion). But even conceding that state-level politicians have no direct control over foreign policy, there is plenty of money to prevent cuts and expand funding for those who need services the most.

The only problem, at least for Massachusetts politicians, is that the money is in the pockets of the rich, the last place they look when it comes to finding revenue to pay for services for the needy and other public programs. It seems they have a case of selective amnesia, because they know all too well that the money is there when it's time to raise cash for their campaigns.

According to the U.S. Census Bureau, Massachusetts ranks seventh in the country, with a median household income of $62,365, and according to the U.S. Bureau of Economic Analysis, Massachusetts ranks third in the U.S. with a per capita Gross State Product (like GDP, but for the state level) of $48,995 in 2007, a measure of value added by state industries.

Massachusetts is one of the wealthiest and most productive states in the wealthiest nation in the world. There is also great inequality, which has been on the rise. According to "Income Inequality in Massachusetts, 1980-2006" in the MassBenchmarks journal, while income for the top 20 percent of Massachusetts households increased 16 percent during the 1990s, "for the bottom 80 percent of families in the Commonwealth, income growth was modest to the year 2000, the top 20 percent of families received almost eight times the income of the lowest 20 percent."

If Massachusetts politicians truly cared about the most vulnerable people in the state, they'd be taxing the rich instead of cutting insurance for immigrants and raising taxes that disproportionately impact the poor and working class.

Massachusetts currently has a flat tax (enshrined in the state constitution) of 5.3 percent on income. Although in the past Massachusetts voters rejected attempts to institute a progressive tax structure where those with larger incomes are taxed at higher rates, I'm confident that today's voters--who voted "no" by a two-to-one margin in 2008 to reject a right-wing attempt to eliminate the income tax--would be open to taxing the rich at a higher rate to pay for health care and social services.

In addition, there are ways around the flat tax. Because of exemptions and deductions, the state income tax is already somewhat progressive, with the bottom 20 percent paying at about a 0.2 percent rate, the middle 20 percent at 3.5 percent, and the top 20 percent at 4.3 percent, according to the Massachusetts Budget and Policy Center. So, lawmakers could raise the flat tax while simultaneously raising the threshold under which income is not subject to tax.

ANOTHER WAY to tax the rich would be to raise taxes on income from dividends and interest, which would primarily impact the wealthy, since in Massachusetts those making over $200,000 per year averaged $23,897 in income from dividends and interest, as opposed to $375 for those making less than $50,000, and almost 10 times the average even for those making $100,000 to $200,000.

According to the Massachusetts Budget and Policy Center, the 1999 reduction of the tax rate on interest and dividends from 12 percent to 5.95 percent cost the state over $500 million in revenue in 2006 alone. Why not raise that rate back to 12 percent, or better yet to 30 percent or more? After all, the wealthy who collect money from this source are simply using the money they already have as leverage to get a larger share of the value produced by workers.

These investors produce nothing of value to society to "earn" their interest and dividends. Why not tax it and use the revenue to fund services for those who actually need them?

In fact, I would propose a retroactive tax on the wealthy, who in recent years profited from speculation linked to the housing bubble. Plenty of them made big money and got out of the game before the crash, leaving the bill for their reckless speculation to be picked up by the millions who lost their home, retirement savings and public services.

For example, in 2006, the 25 top-paid hedge fund managers averaged $540 million a year, a total of $14 billion for just 25 people, much of it from investing in the complicated financial instruments that triggered the current crisis. Those profits should be seized and used to prevent budget cuts, keep people in their homes and provide housing for the homeless.

And for those who protest that this would be unfair to the hedge fund managers, I say that is getting off easy after the destruction their greed has wrought for so many working people.

The story is the same across the country. The money is there--what is lacking is sufficient pressure from below to force the politicians to cut from the top.

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