House Republicans recently approved the “Death Tax Repeal Act of 2015.”  If we care about our debt obligations, social mobility, or equality of opportunity, we should consider doing just the opposite: raising the tax and applying it to more of the super-wealthy.

Currently, the estate tax doesn't touch the first $5.43 million of an individual’s assets and the first $10.86 million of couples’ assets. The tax kicks in after that amount, eventually rising to a top rate of 40 percent.  

Proponents of repeal make a number of claims to make their case. Let’s examine the most common.

1. The estate tax affects a significant portion of Americans. Only about 5,400 estates will pay any estate tax this year. That’s about 0.2% of all estates – that’s right, just two tenths of one percent.  That’s a fortieth of the 1970’s share. Americans worried about the Estate Tax have nothing to fear but fear itself. 
2. The estate tax hurts small farms and businesses. In fact, the estate tax touches virtually no small farms or businesses. The Urban-Brookings Tax Policy estimated how many farm and business estates worth under $5 million paid any tax in 2013. Twenty did. Twenty small farms and businesses paid any estate tax in 2013. And those 20 estates faced an average tax rate of 4.9%. Only 660 farm estates—of any size—paid the tax in 2013, and 100 of those farms had assets worth over $20 million. The USDA estimates that 0.6% of all farm estates owed federal estate tax in 2013. This is because families who farm for a living have access to generous deductions: up to $1 million for continuing to farm the land for the next 10 years and up to $500,000 for adopting conservation easements. They can also delay payment and lighten their tax liability by gifting their land to heirs. Small businesses have similarly generous carve-out.
3. Repealing the estate tax doesn't affect the budget, because it’s a small share of federal revenue. In 2014, the estate tax represented 0.6% of federal collections, or roughly $20 billion annually, according to the Joint Committee on Taxation. But part of the reason that’s so low is because Congress has increased the exemption and lowered the rate in recent years; in 2001, the top rate was 55% and the exemption was only $675,000. Still, even today, repealing the tax is costly. The JCT estimates that repeal would cost the government $269 billion over the next decade.
4. The estate tax represents double taxation. Well, maybe. It is true that people  pay taxes on their income when earned and then may have to pay again when they pass it on to their heirs.  However, because the super-wealthy keep much of their assets as unrealized capital gains (55% for those estates worth over $100 million), the estate tax is the only way, right now, to tax these capital gains. In that sense it can be viewed as a partial corrective within our funhouse of a tax system. Some capital gains, to be sure, are the fruits of hard work and entrepreneurial creativity but a lot are simply the result of gains among those wealthy enough to participate in speculative ventures. 

One thing is true: repeal would mean a large tax break for the wealthiest 0.2% of the population. The 1,336 families with estates worth more than $20 million would get almost three-fourths of the benefit from the repeal and enjoy an average windfall of $10 million each, according to the Center on Budget and Policy Priorities. The 318 families with estates worth more than $50 million would see an average windfall of $20 million each.

These facts are often obscured by our penchant for individual stories. One Washington Post story for example, acknowledges many of the statistics above, but then goes on to give two examples of farmers who had to sell land to meet their tax burden, one of which is several decades old, when the exemption was much lower. Elected officials love these kinds of stories and tell them often. Are they unaware of the generous special provisions for this group?  Do they truly believe that very wealthy families are the ones we should be helping? Or are they thinking about who is going to finance their next campaign?

The estate tax is one of the most progressive aspects of our tax system. In a time of increasing inequality, it provides a way to counteract the formation of a “permanent ownership class.” If anything, we should consider raising the rate and lowering the exemption to pay down debt and invest in opportunities for the unlucky children at the bottom of the wealth ladder. We could start by closing the stepped-up basis loophole and raising the estate tax to Clinton-era levels. We could do so in a way that protects real farmers and small business owners. Wealthy heirs, meanwhile, will still do very well, much better than the rest of America. A serious estate tax would allow us to come closer to our national ideal, in which no child is born a prince, and every child can become as rich as a king.

Note: An earlier version of this post said that the estate tax only applies to assets in excess of the exemption, which is incorrect. The estate tax is levied on the entire estate but is offset by a credit equal to the tax on the first $5.43 million. This version is corrected.

Rumor has it that an economist started hitting the gym after finishing two milestone research papers, in expectation of a Nobel Prize, which is only rewarded to a living person. Almost no one denies that greater expectations translate into healthier behaviors, while the converse rarely enters the health policy discussion: expectations of a less-than-desirable future may lead to unhealthy behaviors, including smoking, excessive drinking, sedentary lifestyles, and drug abuse. The health issues of the deprived may have a deeper root in economics.

Professor Zhu Xi from Shanghai Jiao Tong University and I found evidence of this in our working paper “Affordable Care Encourages Healthy Living: Theory and Evidence from China's New Cooperative Medical Scheme”. Standard economic theory predicts that providing medical insurance encourages unhealthy behavior by mitigating economic consequences. We developed a novel theoretical framework in which the opposite is possible because insurance makes longevity more affordable and thus desirable.

We test the theory utilizing a unique experiment of China introducing the New Cooperative Medical Scheme, unique in its long-term credibility necessary for their proposed channel. This scheme reduces cigarette use by around 9% and bolsters subjective perception of the importance of physical exercise and healthy diet. These effects depend significantly on the number of children and the local culture of elderly care. We can rule out alternative explanations of these robust results. The empirical evidence affirms a causal link between concerns about negative bequest and unhealthy behavior, and how to break it.

Breaking the causal link would not be an easy task, because bringing a brighter future to the deprived would not be. But this does not revoke the necessity of considering this “expectation” mechanism in designing health policies. For example, it is trendy to study how smokers may substitute other tobacco products for cigarettes and the ensuing health consequences. According to our analytical framework, the substitution could be broader, that is, a person expecting a miserable future would consciously or unconsciously resort to other means of shortening life. Case and Deaton, in their sensational paper, pinned down drug and alcohol poisonings, suicide, and chronic liver diseases and cirrhosis as the causes of the rising mortality in midlife among white Americans. The war against tobacco use may be complicated by this potential substitution.

In general, recognizing the source of a problem is the first step in solving it. The association between income and life expectancy in the United States is well identified by a Brookings study by Bosworth and Burke and a paper by Chetty et al. The hypothesis that poverty may rationally trigger unhealthy behaviors and thus shorter life expectancy is under-explored.

Our research suggests that constructing a social safety net – by subsidizing health or old-age insurance, for example – brightens the future and thus promotes healthy living. Libertarians who believe in “from each as they choose, to each as they are chosen” may frown upon the idea of expanding the government for the sake of saving people from their own poor choices. As usual, an argument could be made that the positive externality outweighs the cost. In this case, a better social safety net can make a person more forward-looking and thus more beneficial to the society.

Discovering hidden incentives and mechanisms is one of the primal tasks of economists. Our research suggests, surprisingly, that both the Center of Disease Control and Prevention and the Department of the Treasury are important players in promoting healthy living. Let them be.

Led by presidential candidate Bernie Sanders, one-time supporters of ‘single-payer’ health reform are rekindling their romance with a health reform idea that was, is, and will remain a dream.  Single-payer health reform is a dream because, as the old joke goes, ‘you can’t get there from here.

Let’s be clear: opposing a proposal only because one believes it cannot be passed is usually a dodge.One should judge the merits. Strong leaders prove their skill by persuading people to embrace their visions. But single-payer is different. It is radical in a way that no legislation has ever been in the United States.

Not so, you may be thinking. Remember such transformative laws as the Social Security Act, Medicare, the Homestead Act, and the Interstate Highway Act. And, yes, remember the Affordable Care Act. Those and many other inspired legislative acts seemed revolutionary enough at the time. But none really was. None overturned entrenched and valued contractual and legislative arrangements. None reshuffled trillions—or in less inflated days, billions—of dollars devoted to the same general purpose as the new legislation. All either extended services previously available to only a few, or created wholly new arrangements.

To understand the difference between those past achievements and the idea of replacing current health insurance arrangements with a single-payer system, compare the Affordable Care Act with Sanders’ single-payer proposal.

Criticized by some for alleged radicalism, the ACA is actually stunningly incremental. Most of the ACA’s expanded coverage comes through extension of Medicaid, an existing public program that serves more than 60 million people. The rest comes through purchase of private insurance in “exchanges,” which embody the conservative ideal of a market that promotes competition among private venders, or through regulations that extended the ability of adult offspring to remain covered under parental plans. The ACA minimally altered insurance coverage for the 170 million people covered through employment-based health insurance. The ACA added a few small benefits to Medicare but left it otherwise untouched. It left unaltered the tax breaks that support group insurance coverage for most working age Americans and their families. It also left alone the military health programs serving 14 million people. Private nonprofit and for-profit hospitals, other vendors, and privately employed professionals continue to deliver most care.

In contrast, Senator Sanders’ plan, like the earlier proposal sponsored by Representative John Conyers (D-Michigan) which Sanders co-sponsored, would scrap all of those arrangements. Instead, people would simply go to the medical care provider of their choice and bills would be paid from a national trust fund. That sounds simple and attractive, but it raises vexatious questions.

• How much would it cost the federal government? Where would the money to cover the costs come from?
• What would happen to the $700 billion that employers now spend on health insurance?
• How would the $600 billion a year reductions in total health spending that Sanders says his plan would generate come from?
• What would happen to special facilities for veterans and families of members of the armed services?

Sanders has answers for some of these questions, but not for others. Both the answers and non-answers show why single payer is unlike past major social legislation.

The answer to the question of how much single payer would cost the federal government is simple: $4.1 trillion a year, or $1.4 trillion more than the federal government now spends on programs that the Sanders plan would replace. The money would come from new taxes. Half the added revenue would come from doubling the payroll tax that employers now pay for Social Security. This tax approximates what employers now collectively spend on health insurance for their employees...if they provide health insurance. But many don’t. Some employers would face large tax increases. Others would reap windfall gains.

The cost question is particularly knotty, as Sanders assumes a 20 percent cut in spending averaged over ten years, even as roughly 30 million currently uninsured people would gain coverage. Those savings, even if actually realized, would start slowly, which means cuts of 30 percent or more by Year 10. Where would they come from? Savings from reduced red-tape associated with individual insurance would cover a small fraction of this target. The major source would have to be fewer services or reduced prices. Who would determine which of the services physicians regard as desirable -- and patients have come to expect -- are no longer ‘needed’? How would those be achieved without massive bankruptcies among hospitals, as columnist Ezra Klein has suggested, and would follow such spending cuts? What would be the reaction to the prospect of drastic cuts in salaries of health care personnel – would we have a shortage of doctors and nurses? Would patients tolerate a reduction in services? If people thought that services under the Sanders plan were inadequate, would they be allowed to ‘top up’ with private insurance? If so, what happens to simplicity? If not, why not?

Let me be clear: we know that high quality health care can be delivered at much lower cost than is the U.S. norm. We know because other countries do it. In fact, some of them have plans not unlike the one Senator Sanders is proposing. We know that single-payer mechanisms work in some countries. But those systems evolved over decades, based on gradual and incremental change from what existed before. That is the way that public policy is made in democracies. Radical change may occur after a catastrophic economic collapse or a major war. But in normal times, democracies do not tolerate radical discontinuity. If you doubt me, consider the tumult precipitated by the really quite conservative Affordable Care Act.

Editor's note: This piece originally appeared in Newsweek.

It’s time to spend less money on health care for older Americans. There, I’ve said it. But I’m not saying this because I’m some self-centered millennial – I’m turning 69 this summer. I’m saying it because, for older Americans especially, our health system has become a giant, expensive repair shop. It’s not a set of programs and supports to help us age the best way we can – mentally as well as physically.

Here’s what I mean. Thanks to American physicians’ training and financial incentives, the first thing most doctors will ask an elderly patient is “What’s the matter with you?” not “What matters to you?” In other words, they focus on the ailments they can try to fix with expensive technology, surgery or drugs, rather than ask what is important to you and how can they help enhance the quality of your life. 

If you do have a medical problem, it is not always best to concentrate exclusively on fixing it. Sometimes it is better to avoid “cures” that have severe side-effects that can reduce your quality of life. And sometimes the physician should really be calling a local social service agency or volunteer organization to figure out how you can continue living close to your friends of all ages, rather than steering you to a well-equipped nursing home that only houses seniors.

It’s not that physicians are bad people. It’s that for multiple reasons we tend to “over medicalize” aging in America by focusing too much on repairing people and not enough on preventive actions or maintenance care. For instance, Medicare and also Medicaid (for which low-income seniors qualify) will spend tens of thousands of dollars to repair a hip fracture, or to cover the cost of nursing home care. But there are few public resources available to modify a home to reduce the likelihood of ever having a fall, such as by replacing a bathtub with a walk-in shower. 

One reason for this pattern is our tendency as Americans to want to throw money at fixing problems once they become crises rather than to take prudent steps earlier to avoid the problem. Some would say that explains many of our foreign policy mishaps. It certainly explains our infrastructure problems, from poisoned water in Flint, Michigan, to deteriorating bridges on our interstates. 

But there’s another key reason. Unlike most other major countries, we spend a lot on medical care and proportionately much less on a range of other services, from transportation and in-home care to nutrition assistance – ongoing services that can both improve quality of life and reduce the likelihood of later medical problems. Other industrialized countries spend an average of roughly $2 in social services for every $1 on health care. We spend about 90 cents per health dollar. Sure, we can do medical wonders, but for many older Americans the balance is wrong. Too much expensive surgery and drug therapy. Too little on making aging easier and safer.

So what can we do to focus more on “what matters?” rather than on “what’s the matter?”

For starters we can encourage physicians and hospitals that look beyond their office walls at the things needed for a better life. The Affordable Care Act – or Obamacare – did take a step in this direction by penalizing hospitals if certain elderly discharged patients are readmitted within 30 days. The result? Hospitals are starting to look at improving the home safety of elderly patients rather than functioning simply as a repair shop. That could mean fewer falls and other incidents resulting in calls to 911.

We also need to encourage physicians to spend more time talking with older patients about their life goals and planning for possible health setbacks, just as prudent Americans talk to planners about their financial future. Medicare is helping this by now paying physicians for conversations about end-of-life planning. But Medicare and private insurance ought to cover time spent in much broader conversations about patients’ goals in aging. Perhaps even more important, medical schools need to provide much better training for physicians on how to conduct those conversations – today few physicians do that well.

The other step needed is to give government agencies and programs much greater leeway to “braid” together health, housing, social service and other funds so that we can age more safely – and happily – in our community. If we did that, we’d likely end up spending much less on medical procedures and much more on other things that actually improve physical and mental health. 

In this election year, those are “Medicare cuts” all seniors should embrace.

Editor's note: This piece originally appeared in Inside Sources.

Editor's note: This piece was written in response to John McDonough's article in the American Journal of Public Health titled "Shorter lives and poorer health on the campaign trail." Read McDonough's article here. 

McDonough is right about two very important things. First, that in America we have quite dismal outcomes for the enormous amount we spend on health care. And second, that there is a real opportunity for a new political dialog between left and right to take root—though perhaps one that is more of a quiet agreement than a high-profile grand bargain. 

McDonough wisely draws attention in Figure 3 of his editorial to the sharp distinction between the United States and other Organisation for Economic Cooperation and Development countries in the relative proportions of gross domestic product spent on health services and social services. The United States is a lonely outlier because we overmedicalize our approach to health conditions and community health. Generally a blend of social, housing, public health, and other preventive strategies would yield better health results than calling an ambulance—and at a fraction of the cost. Even our higher survival rates after age 75 years is a mixed blessing, as Gawande points out, because expensive and frequent medical interventions may extend age but often not the quality of life.¹ 

The good news, both substantively and politically in this election year, is the growing recognition that addressing the social determinants of health is a key—perhaps the key—to improving health outcomes while slowing the growth in health spending as a proportion of gross domestic product and public spending. McDonough and I agree on that, despite his affection for Bernie Sanders’ utopian Medicare-for-all, which likely would do little to address the underlying cost and outcomes problem. 

So how could a new conversation develop, of the kind both we both would like to see? I think on several fronts. 

First, building on existing collaboration, serious analysts and policymakers on both sides of the political spectrum should explain more extensively how resources currently restricted to either health care or social services and housing should and could be more routinely braided together. Despite some interesting experiments and demonstrations that allow certain health and housing money to be mixed and used creatively, budget restrictions and payment systems generally make this dif- ficult. We could seek to agree on a mixture of legislative action on payments and budgets, and using Medicaid (Section 1115) waivers, to permit money currently available only for medical services to be used instead for housing and social services where that could be shown to improve the health of individuals in a community. 

Second, we could agree on bipartisan steps to allow states to experiment with more creative approaches to alter the blend of strategies they have available to achieve improved health outcomes. Section 1332 of the Affordable Care Act (Pub L No. 111–148) is a start, since it will allow states to propose alternatives to some Affordable Care Act provisions to improve coverage and outcomes without increasing federal costs. McDonough and I agree on using 1332 waivers in this way. But a further step would be legislation to allow states to seek even broader waivers to shift money between health and social service programs. For that to happen, conservatives would have to accept increases in total spending on some social service programs. Progressives would have to accept reductions in health programs and reduce their reluctance to granting states more flexibility. Both would have to accept rigorous evaluation to determine what works and what does not. 

And third, there is an opportunity for agreement on empowering intermediary institutions² in neighborhoods, including charter and community schools, as well as health systems,³ to serve as hubs for integrated approaches to achieving health communities. That approach combines the conservative emphasis on the importance of nongovernmental institutions with the progressive emphasis on community action. Again, systematic evaluation is needed. 

Hopefully there can be cross-party congressional support agreement on these themes, as McDonough notes has occurred in alternative sentencing. But it is unlikely in the election season that such themes will be seized upon by presidential candidates. In my view, that is probably good, because presidential elections are about differences, not path-breaking agreements. Better, during this election cycle, to foster positive conversations that cause such themes to be taken out of the election debates, so that they will have broad support for enactment after the Election Day dust has settled. 

1. Gawande A. Being Mortal. New York, NY: Metropolitan Books; 2015. 

2. Singh P, Butler SM. Intermediaries in Integrated Approaches to Health and Economic Mobility. Washington, DC: The Brookings Institution; 2015. 

3. Butler SM, Grabinsky J, Masi D. Hospitals as Hubs to Create Healthy Communities: Lessons From Washington Adventist Hospital. Washington, DC: The Brookings Institution; 2015.

Editor's note: This piece originally appeared in the American Journal of Public Health. 

Much public focus is being given to a broader role for hospitals in improving the health of their communities. This focus parallels a growing interest in addressing the social determinants of health as well as health care policy reforms designed to increase the efficiency and quality of care while improving health outcomes.

This interest in the community role of hospitals has drawn attention to the federal legal standards and requirements for nonprofit hospitals seeking federal tax exemption. Tax-exempt hospitals are required to provide community benefits. And while financial assistance to patients unable to pay for care is a basic requirement of tax-exemption, IRS guidelines define the concept of community benefit to include a range of community health improvement efforts.

At the same time, the IRS draws a distinction between community health improvement spending–which it automatically considers a community benefit–and certain “community-building” activities where additional information is required in order to be compliant with IRS rules. In addition, community benefit obligations are included in the Affordable Care Act (ACA).

Specifically, the ACA requires nonprofit hospitals periodically to complete a community health needs assessment (CHNA), which means the hospital must conduct a review of health conditions in its community and develop a plan to address concerns. While these requirements are causing hospitals to look more closely at their role in the community, challenges remain. For instance, complex language in the rules can mean hospitals are unclear what activities and expenditures count as a “community benefit.” Hospitals must take additional steps in order to report community building as community health improvement.

These policies can discourage creative approaches. Moreover, transparency rules and competing hospital priorities can also weaken hospital-community partnerships. To encourage more effective partnerships in community investments by nonprofit hospitals:

• The IRS needs to clarify the relationship between community spending and the requirements of the CHNA. 
• There needs to be greater transparency in the implementation strategy phase of the CHNA. 
• The IRS needs to broaden the definition of community health improvement to encourage innovation and upstream investment by hospitals.

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