The stars may finally be aligned to enact universal health care coverage in the United States; the problem, of course, is paying for it. The lead editorial in the July 7th New York Times summed it up: "If health care reform falls apart again in Congress, the most likely cause will be failure to agree on how to subsidize coverage for tens of millions of uninsured Americans."

            The real question, then, isn't whether the country can afford universal coverage; if Canada, England, France and every other developed nation in the world can afford it, it's next to laughable to suggest that it's too expensive for America. The real question has little to do with cost, and almost everything to do with ideology.

            In this regard Republicans have upped the ante: having established the GOP as the party of "no," on health care they're determined to be the party of "double no".  In the first place, they don't believe health care is a right. In the second, they're hardwired to howl at even the hint of a tax increase: any increase, for any reason, especially for anything as left-wing, and maybe even subversive, as national health care.

            So Obama can forget about bi-partisan support. The GOP opposed Social Security in 1935, it opposed Medicare in 1965, and it will vote overwhelmingly against health care reform in 2009. (Looking back, has the party picked up any cues from its behind-the-curve votes in '35 and '65? Can't Republicans see, at least dimly, the historic parallels? You guessed it: "no" and "no".)

            That leaves reform plans almost totally up to the Democrats, and the picture is altogether murky.

            Way back when, Obama's No. 1 idea for financing health care was to cap the itemized deductions for upper-income taxpayers at 28 percent for charitable donations, mortgage interest, and state and local taxes. Democratic leaders immediately objected, citing fear of decreased contributions to charities, universities and other institutions. The proposal still survives, but in much reduced form.

            John McCain had a fiscally sound idea when he was running for president. The way to finance health care reform, he said, was to tax the now tax-free health benefits provided by employers to roughly 160 million workers and their dependents. In pure dollar terms, McCain was absolutely right: as the New York Times reported, "taxing all employer-provided health benefits...would raise more than $2.5 trillion over a decade--more than twice Mr. Obama's goal." Obama denounced McCain's proposal during the campaign, but versions of it are alive and well as the brass-tacks bargaining begins. The biggest roadblack: unions, overwhelmingly Democratic, oppose levying taxes on a benefit they see as having been won by the labor movement for its members. Another roadblock: Blue Dog Democrats, who seem way more concerned about deficits than they are about Americans going without health care.

            Not getting much air time, but worth bringing up again, is a speeded-up end date for the Bush tax cuts. They're scheduled to expire at the end of 2010, but Congress could always do it earlier. (Not likely, however; Obama is on record as against the idea.)

            At the weekend, House Democrats introduced a plan to impose a surtax on individuals with adjusted gross incomes of at least $280,000 and couples making $350,000 and more. It faces strong opposition, especially in the Senate but in the House as well.

And here's another idea: repeal the annual $3,000 capital loss offset that's allowed against ordinary income for stock market losses. Offsets wouldn't be taken away; they would still be allowed, but only against capital gains. There's little justification for stock market capital loss offsets to begin with; there's none whatever for an offset against ordinary income. Ending it would gain billions for the Treasury, especially now in light of Wall Street's horrific 2008; and in the long term, nobody's taxes would go up one iota. More tax revenues, but no tax increase; sounds powerful good to me.     

You think investors had it bad last year? You may not know it, but they're coming to America's taxpayers to help bail them out.

Every spring, thanks to a generous tax code provision, the Treasury picks up part of the tab for losing bets on Wall Street. Given last year's historic plunge, these personal bailouts could rival the $700 billion TARP bailout--and for investors, there's no dollar cap or cut-off date.

It all adds up to an extended fiscal hit on the Obama Administration. Sizeable federal revenues from capital gains taxes have effectively been wiped out for years to come. No matter how large the losses realized in 2008 (and so far in 2009), no matter how long it takes to recoup, Uncle Sam will be sharing the pain. Deeply sharing: up to 35 percent depending on the loser's tax bracket, or 39.6 percent if Obama ends the Bush tax cuts for higher-income Americans.

Capital loss offsets are the tax code provision that soothes investor wounds.  When the year's trades are reported on tax returns, losses offset taxable gains dollar-for-dollar. If net losses exceed gains, the loss offsets taxable income--by up to $3,000--and provides another tax saving.

Offsets never lose their tax-reducing power. Losses greater than $3,000 (as last year's probably were) are carried forward indefinitely until they're used up.

The tax on long-term capital gains is currently at a 70-year low of 15 percent. With capital loss offsets, the deal is equally sweet on the downside. While gains are taxed at less than half the top rate, losses are written off at 100 percent across the board. Could losing come any closer to winning?

Yes, say Senator John McCain and Michael Boskin, a former chairman of the Council of Economic Advisers. Senator McCain proposed raising the capital loss offset against ordinary income from $3,000 to $15,000 per-year for 2008 and 2009. Boskin would up the number to $20,000.

All of which raises some interesting questions. Who benefits from these write-offs? Is there good reason for the government (read: taxpayers) to subsidize investment losses? Might the tax system be fairer, and rates perhaps lower, if these subsidies were curbed or even ended?

The first question is easy. Roughly 50 percent of Americans own no stocks, so offsets hold nothing for them. Of the half who do own stocks, most have their portfolios in tax-sheltered retirement accounts. They don't get those write-offs, either.

That leaves a fairly narrow layer, those affluent enough to have non-retirement stock portfolios. Putting it another way, the only people who gain from capital loss offsets are people who already have ample capital. (If this hints at class warfare, here it is served neat by Warren Buffett: "There's class warfare, all right, but it's my class, the rich class, that's making war, and we're winning.")

As to whether subsidies for investors are a sound government policy, sure they are--but it's foolish to hand out tax breaks just for playing the market. Real investors, a thimbleful of the total, put seed money into initial public offerings (IPOs) and follow-on offerings. They grow jobs and grow businesses. The rest of us merely play the game at the tables down on Wall Street; we grow portfolios (if we're lucky), nothing more. Real investors have a strong claim to tax breaks. "Investors" have a frail claim, and it's time that Congress caught on.

Tax fairness--as always--is in the eye of the 1040 filer. Still, facts matter. Capital loss offsets benefit the few at the expense of the many. Like all tax deductions, they're paid for by taxpayers in the aggregate--through higher rates, fewer government services, or both. Taxes would be fairer without offsets. Short of repeal, Congress could set a dollar or percentage limit (a form of which was on the books years ago). At the least, the offset against ordinary income should be erased.

Except for real investors, who are 100 percent deserving of 100 percent offsets (and an income offset too). If they lose more than $3,000 in a year, Michael Boskin's $20,000 income offset is a starting point.

Now to President Obama, whose Tax Fairness Plan during the 2008 campaign opened on this note: "For decades, America has been victim to an anti-tax sentiment that has led to tax cuts that favor wealth, not work."  Lower taxes on capital gains than on wages are a prime example; capital loss offsets, while not literally tax cuts, are another example. When Congress finally takes up tax reform, the president's instinct for fairness should be his one true guide.

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The author helped pass a bill that tightens the rules for reporting capital gains on tax returns. His op-eds on investment taxes have appeared in several major dailies.

Copyright 2009 Gerald E. Scorse