Financing S-CHIP

Let’s re-pass S-CHIP, with a new financing mechanism: either a surtax on incomes over $500,000 per year, or a tax on private jet travel.

Having come up 13 votes short on the S-CHIP bill, Congressional Democrats need to think about next steps. I think the right strategy is obvious: pass the damned thing again, and keep passing it, making the Republicans vote against health care for middle-class children from now until Election Day. It looks to me like a no-lose: either the bill passes, and we have an accomplishment to claim, or it doesn’t pass, and we have an issue for 2008 that (1) is salient (2) is easy to understand and (3) where 75% of the voters, including almost all the swing voters, are on our side.

But passing exactly the same bill looks too much like a gimmick. And the bill that just crashed and burned did have one substantial flaw: it was to be financed with higher cigarette taxes, with fairly bad consequences for a substantial number of poor elderly nicotine addicts, who really haven’t done anything to deserve it. As Jon Caulkins once remarked, “Their decision to damage their lungs is no reason to make them pay through the nose.”

So let’s pass a new S-CHIP bill, identical to the previous one except for the financing mechanism. And since the second over-ride might also fail, we should have additional backups.

Where should the money come from? Obviously, from people who have more than they need. There are two basic ways of doing that: higher taxes on the highest incomes (let’s say, $500,000 per year) or taxes on things that rich people consume.

The policy analyst in me says “Income taxes good; sumptuary taxes bad.” So my first choice would probably be to create an additional tax bracket at the $500,000-per-year level (indexed for inflation).

But politically there’s an advantage in taxing “wicked waste.” And fortunately, we now have a symbol of wicked waste that’s actually A Bad Thing: travel by private jet. It ought to be discouraged on global-warming grounds alone, in addition to the contribution of private jet travel to airport crowding. (Landing a plane ties up a runway for the same amount of time no matter how small it is.) Since all aircraft file flight plans with the FAA, administering a per-hour or per-takeoff-and-landing tax on private and corporate jet aircraft would be trivially easy. If it made some of the wingnuts feel better to think they were “taxing Al Gore’s private jet,” that’s fine with me.

So all we need to turn these concepts into proposals is the numbers. What marginal rate at the $500,000 bracket, and what tax per hour in the air or per operation for private jets, would be needed to raise $7B/yr.?

Update A reader points out that figure is $35 billion over 5 years, not $35 billion a year as the post originally stated. A quick calculation suggests that the requisite private-jet tax would be too high to be practicable. On the other hand, a reader with the data at his fingertips estimates that it would take only a 0.7% surtax on incomes over $500k per year to raise $7B per year. “Of course,” he adds, “that would completely destroy their incentive to work and save.”

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact: