The Inequality of Hidden Taxes

The 2020-21 “multi-demic” of the coronavirus, economic disruption, and racial unrest has prompted a wealth of promising ideas for how to improve everyone’s lives in terms of health and wellness, economic security, and racial equity.  As appealing as these ideas may be, they will face enormous implementation challenges and hurdles.

We have been here before — in 1968.  Atrocities in Vietnam, the King and Kennedy assassinations, and riots across the country from Watts to Washington precipitated general unrest.  The Kerner Commission addressed the riots and provided quite reasonable recommendations for addressing racism.  They were never implemented.  What challenges and hurdles deterred action then and might affect us now? 

There are certainly social and cultural divides underlying political deadlocks and occasionally deadly conflicts and violence.  We need to work, as some articulate, to “heal the soul of America.”  Such aspirations are similar to those following 1968.  Progress should, hopefully, provide a foundation for shared aspirations.

However, even if the social and cultural divides were ameliorated, we will still face enormously complex economic and political issues.  The United States is, quite intentionally, a highly fragmented ecosystem with responsibilities, resources, and discretion at national, state, and local levels.  This fragmentation hinders creation of integrated solutions for almost everything except possibly national security.

Lack of understanding of the causes and implications of this fragmentation causes widespread public misunderstanding of why seemingly good ideas encounter opposition and often fail.  I contend that increased public understanding of the complexity of the US ecosystem will enable enhanced advocacy and well-informed voting that, over time, will increase support for broadly-based initiatives.

Heath & Wellness

Consider three examples — health, education, and energy.  The US spends more per capita on healthcare than any other country, and achieves rather mediocre results, particularly for those challenged by social determinants of health.  Why does this happen?  Our health system is designed to address acute care rather than chronic care.  Chronic issues are judged to be responsibilities of individuals, rather than “the system.”

Healthcare providers make most of their profits from acute care for cancer, cardio, and ortho conditions.  Payers minimize expenditures on chronic care because the payoffs are too far into the future.  Providers, payers, drug companies, and medical device companies have optimized their organizations to prosper in these conditions.  They have become vested interests opposed to needed changes.

More specifically, over the past several decades in the US, wages have stagnated at an annual growth rate of 1-2%, particularly for low wage workers.  At the same, the costs of labor to employers have grown annually by 8-10%.  This difference is due to the steadily increasing costs of health insurance.  Healthcare providers charge patients with employer-based insurance roughly twice what they charge Medicare and Medicaid patients.  They make up their losses on these patients by over-charging others.

Put simply, people are sacrificing wage increases to pay health insurance increases to compensate for other people’s healthcare costs.  Employee co-pays have increased, but people still like their “free” insurance.  However, it is far from free as they have sacrificed possible substantial raises to this “hidden tax.”  People are unknowingly subsidizing patients for which the government will not pay the full costs of healthcare.  The government has masked this exploitation of wage earners.


It would be great if everyone was healthy and educated.  A small proportion of the US population is very well educated, better than any other country.  However, the overall level of student achievement is well behind other OECD countries.  We do not invest in everyone and a large proportion of young people are left behind, particularly those in poorly performing K-12 schools.

16% of graduates produced by K-12 education are STEM ready.  This limits the number of STEM college graduates, whose average starting salaries are $40,000 higher than non-STEM graduates.  Another major problem is the limited number of non-college bound students who are unprepared to join the “skilled technical workforce” to manufacture, operate, and maintain the increasingly complex systems upon which our society depends.  Solving this problem requires transforming K-12, but local control of K-12 often stymies any changes.

The costs of a college education have soared, leading to student debt exceeding the US credit card debt.  This has delayed marriages and home purchases, as well as having children.  These escalating costs have actually replaced healthcare as the poster child for uncontrolled costs.  Faculty salaries have increased quite modestly, but the costs of administrative staffs and salaries have soared.  One well-known university system has more staff than students, not counting faculty members.

One driving force is the desire for tuition to be high for those who can pay it, while everyone else gets a 50% discount.  Another driving force is the need to provide remedial courses for those whose K-12 education was inadequate.  Then, there are the costs of advising, mentoring, placement, and mental health services for the many students not prepared to perform and compete in the supposed meritocracy of academia.  The classroom has become a decreasing element of higher education.  The end result is a “hidden tax” on both those who can afford it and particularly for those who cannot afford it.


There seems to be increasing acceptance, grudgingly by many, of the need to achieve carbon (and methane) neutrality to halt global warming.  This will require shifting to electrical power that relies on hydro, solar and wind energy, and possibly smaller, safer nuclear plants.  This will totally disrupt the fossil fuel industry, which is not a monolith – there are over 3,000 electric utilities and 9,000 fossil fuel companies in the US.

This fragmentation of the energy industry will make it quite difficult to formulate an agreed-upon path forward.  Government incentives, investments, and regulations, as well as training for new jobs, will be important.  Public understanding and engagement will also be critical.  We need methods to engender this understanding and engagement. 

Energy consumption is a central element of the energy domain.  Everyone pays increased taxes, directly or indirectly, to subsidize car ownership and usage.  There are “external costs” of automobiles, the measurable costs for parties other than the car owner.  Several studies have assessed the main externalities of driving to be the costs of congestion, accidents, air pollution, noise, climate change, nature and landscape damage, water pollution, oil pollution and energy dependency.

A variety of estimates hover around $0.33 per vehicle mile driven.  There are 3.3 trillion miles driven annually in the US, so the external costs are a bit over $1 trillion per year.  Dividing by 260 million US residents of driving age yields roughly $4,200 per person per year.  The number of cars owned is correlated with family income at 0.70.  The extent of car usage increases with income.  Thus, the “hidden tax” of $4,200 per year disproportionately affects lower income people, even those without cars.

This tax is very much hidden.  It is mostly paid by government, either now or eventually.  It includes the healthcare costs due to pollution, noise, temperature, etc.  Put simply, $4,200 is annually spent on each person in the US regardless of the extent of their driving.  This $1 trillion could be much better invested in health and education than in compensating for energy misuse.


There are many millions of jobs associated with healthcare, education, and energy, as well as trillions of dollars of investments in the status quo.  Corporations, unions, and advocacy groups will resist transformation of these domains, despite the high costs and poor performance of healthcare and education, as well as the clear dangers of continued reliance on fossil fuels.  Paychecks and corporate bonuses are at risk.

However, a society that is fair and equitable would not have these hidden taxes.  People with higher incomes would pay more of these costs, and they might declare them as tax deductions. People would get credit for paying for other people’s health, education, and energy consumption.  These hidden payments would become transparently apparent to everyone.

As reasonable as this may seem, it will face challenges from all the people being subsidized.  Their challenges will be tribal, perhaps couched as ideological, but the simple explanation is that they are used to getting benefits that they have not earned.  To avoid this loss, they will devise self-serving arguments about principles in conflict with their complete lack of truthfulness and integrity.

The public needs to be engaged and educated to understand the complex challenges we face.  They need to be well informed to wisely choose which policies to support and advocate.  This education and possibly demonstrations should be provided collaboratively by a range of partners representing economic and political interests, scientific and technical expertise, and the social and spiritual elements central to this ambitious societal endeavor. 

An equitable society does not impose hidden taxes, particularly taxes that penalize lower income people, often with them being unaware they are being taxed.  Instead, they feel their paychecks are somehow less and less sufficient to pay their bills.  Exposing hidden taxes can help to create a more equitable society.

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