Tax Reform For A Healthier America: Could Fixing An Unfair Tax Code Actually Improve U.S. Health?

In September of 2013, Senate Finance Committee Chairman Max Baucus (D-Montana) and Ways and Means Committee Chairman Dave Camp (R-Michigan) issued a joint statement calling for comprehensive reform of the U.S. tax code which they described as "broken." It is not broken. In fact, it is perhaps the most effective legislation ever passed by Congress.

Baucus and Camp's bipartisan mischaracterization stems from either not acknowledging or not understanding what tax law in our country is designed to do: perpetuate the magnification of wealth for those who already have it at the expense of those who will never get it. We absolutely do need to reform the U.S. tax code -- not because it is broken, but because it works.

The term "tax loophole" is another mischaracterization. It implies that taxes are fair, or meant to be fair, but that inadvertent inefficiencies exist which can be exploited by the wealthy to their own advantage. This language should stop. Tax law is structurally unfair, not as an unintended consequence, but by design, and is intentionally complex in order to mask its inherent structural inequality.

The U.S. tax code is sickening. Not metaphorically, but literally. According to the World Health Organization, and acknowledged by the Centers for Disease Control, "social determinants of health are mostly responsible for health inequities -- the unfair and avoidable differences in health status seen within and between countries." The fundamental social determinant of health in society is the economic gap between the rich and the poor. Countries that are more egalitarian have better health, while countries with wide income gaps between rich and poor have worse health. This is why, even though the United States is the wealthiest nation on earth, and spends more per capita on health care than any other country, the U.S. suffers the worst health of all wealthy developed nations. The health gap between the U.S. and other wealthy nations is so large that even if the U.S. completely cured heart disease or cancer, we still wouldn't be at the top of the list for health.

It makes sense, then, that the most effective means for establishing and maintaining health in the U.S. would be economic intervention, not medical intervention. Although medicine is often necessary once ill health has set in, it is more effective and efficient to keep people healthy in the first place.

I started Bradco Supply Company in a single warehouse in New Jersey in 1966, and built the company up to over 130 branches in 30 states, with sales peaking at $1.9 billion. I was inspired after attending a Clinton Global Initiative meeting to start Segal Family Foundation, an organization dedicated to improving the well-being of communities in Sub-Saharan Africa. A few years later, I started a second foundation, Focus for Health, which strives to ensure that all individuals have the information they need to make the best decisions about their health. I've been successful both in my business career and in my philanthropic endeavors, and I have a unique perspective when it comes to tax reform.

People talk about changing the tax code, but I don't think they've come up with any meaningful suggestions so far.

I agree with Warren Buffet -- the wealthy don't pay enough in taxes. I know from my situation that there are too many gimmicks that allow for someone like me to pay far less than the average working individual. I have two charitable foundations, and I think any income they generate should be taxed in the 5-10% area. Plus we should have to give away 10% of our equity.

What follows are a few of my economic prescriptions for reforming tax code that could get us some of the way back toward a more equitable and healthy society.

I feel strongly that you have to phase in changes and give advanced notice on them, but tax code changes must be instituted. Here are a few of my ideas:

  1. 1031 Exchange: This allows wealthy people to get out of paying capital gains tax on properties if they "exchange" their real estate for something similar. Some say this code creates jobs, but it seems to me that this only helps the rich get richer. My fix: give six months' notice, then completely stop this practice.

  • Long-term Capital Gains: It's too easy for the wealthy to benefit from this tax law. The really rich make most of their money through investments, and because they can afford to hold on for a year, they enjoy a much lower tax rate than they should. My fix: Long-term capital gains taxes should start at two years. While they're at it... they might want to start offering corporations a capital gains tax of 25% to 30%. This has the potential to generate needed funds.
  • Depreciation and Accelerated Depreciation: The depreciation tax shield is another way to minimize taxable income. Because assets lose value over time, they can be written off as expenses (depreciation). If you want, you can legally say that these assets lose more value in the early years, allowing you to pay even less up front (accelerated depreciation). My fix: The depreciation rate is way too generous. It should be scaled back. Accelerated depreciation should be stopped completely.
  • GRATS and the Gift Tax: These only help very wealthy people keep their money in the family. By shuffling money around, the very wealthy use the GRAT shelter to legally bypass paying estate and gift taxes. The gift tax itself is too light. Right now, a married couple can literally gift $28,000 a year to as many people as they want... without any taxes being paid at all. My fix: Phase down GRATS and then eliminate. Untaxed yearly gifts per couple should be limited to $100,000 total. It would be nice to phase down the current 5 million lifetime limit to 4 million. Grantor trusts should just stop.
  • Social Security: I've been fighting the Social Security mess for a while now. I wrote to them in 2011 that I didn't need it, but they still won't stop sending me money. In this country, most people have the impression that the money they pay into social security belongs to them. In other countries, the general feeling is that it is the public's duty to take care of the needy. The American attitude towards poverty needs to change, but obviously that is very hard to do.
  • Right now, Social Security tax is only paid up to an annual income of $118,500. Every dollar earned above that amount is not taxed. Why should people making over that amount be given a break? My fix: They should start at $150,000 at a reduced rate, and continue forever.
  • And there should be a means test. People with income over $500,000 a year shouldn't be taking money from Social Security or Medicare. For those who want to, there should be an option to divert the money to charity. Give them four options to choose from -- veterans, poverty, etc. Too much of this money is going to people who don't want or need it.

    I know these suggestions are not going to quickly balance the budget, but they're a start.