Delay, Deny, Tax

Emory Law Scholarly Commons Emory Law Scholarly Commons

Emory Law Journal

9-29-2025

Delay, Deny, Tax Delay, Deny, Tax

Samuel D. Brunson

Part of the Law Commons

Samuel D. Brunson*

Health insurance companies are having a moment in the United States. Their moment involves widespread public objections to their seemingly random and increasing willingness to deny coverage and reimbursement to insureds. These denials are in large part not part of a program to improve health coverage but, rather, to reduce insurance companies’ expenses and, in turn, increase their profits.

There is broad consensus that something has to change. The public demands it. Bipartisan groups of senators and representatives have investigated it. Even the health care industry acknowledges that something needs to change. To actually make the health care system better requires more than easy or simplistic solutions. A long-term solution requires completely rethinking the way the United States provides health care. But while policymakers struggle to craft such a fundamental revision of the health care industry, denials by health insurance companies continue to hurt individuals.

Although this Article does not provide a comprehensive rethinking of the health care industry, it does propose a relatively simple interim policy that will ameliorate the problem of health insurance companies unnecessarily denying health coverage: an excess profits tax imposed on health insurance companies. While the putative purpose of insurance companies is to protect policyholders from unexpected and ruinous financial losses, internally, insurance companies function to earn a profit for their shareholders. To the extent an insurance company denies a claim—or even delays payment on that claim—it has increased its profits. The company, thus, has two competing incentives: On the one hand, its business involves paying for health care, but on the other, it is designed to provide a return to its shareholders. While it cannot ignore paying for policyholders’ health care, a health insurance company will likely face steep pressure to prioritize profits. Even though there is debate over whether shareholder primacy constitutes a legal obligation for corporations or just a

generally accepted norm, shareholder primacy continues to “dominate” thoughts about corporate governance. Thus, whether or not corporations have a legal obligation to maximize shareholder profits, many corporations focus on maximizing shareholder profits.

After looking at the history of excess profits taxation in the United States, including a renewed interest in it during the COVID pandemic, this Article proposes a targeted excess profits tax imposed on the health insurance industry. Such a tax would avoid the impediments of a broad-based excise profits tax and would function as an effective tool to ensure that insurance companies do not delay and deny insurance claims to boost shareholder profits. In addition to enacting a tax on health insurance companies’ excess profits, Congress should earmark its revenues to help fund health care access for people who cannot afford it. Then, such a tax would simultaneously provide regulatory pressure for insurance companies to pay for health care and help those who cannot access insurance to receive the health care they need.

INTRODUCTION ................................................................................................... 4 I. EXCESS PROFITS TAXATION IN THE UNITED STATES .............................. 7 II. A RENEWED INTEREST IN EXCESS PROFITS ........................................... 15 III. IMPEDIMENTS TO AN EXCESS PROFITS TAX .......................................... 18 IV. A HEALTH INSURANCE EXCESS PROFITS TAX ....................................... 20 A. An Excess Profits Tax to Protect Individuals ................................ 22 B. Mobile Capital and a Health Insurance Excess Profits Tax ......... 28 CONCLUSION ..................................................................................................... 30

The end of 2024 represented a significant moment in public discourse surrounding health insurance. On December 4, 2024, Brian Thompson, the CEO of UnitedHealthcare, was murdered on the street in Manhattan.1 Police found his murderer with a three-page letter “in which he lamented the high cost of health care in the U.S. and singled out UnitedHealthcare for its profits and size.”2 A week later, a woman in Florida was arrested for allegedly threatening a BlueCross BlueShield employee over denied medical claims.3

The moment facing health insurance has not been limited to violence or threats of violence. Online, Americans share their horror stories of dealing with their health insurance.4 And peoples’ perception of having care denied is not unreasonable: ProPublica reported that UnitedHealthcare is limiting the number of hours of applied behavioral analysis—the “gold standard treatment” for children with autism—for which it will pay.5 Critically, the health insurance company does not argue that the care is ineffective or unnecessary.6 Rather, the denial is part of a plan to reduce its expenses and, in turn, increase its profits.7

There is broad consensus that something has to change. On December 10, 2024—a week or so after Thompson was murdered—a bipartisan group of senators and representatives introduced legislation that would force health

insurance companies to divest retail and mail order pharmacies.8 Even the health care industry acknowledges that something needs to change. The CEO of UnitedHealth Group, the parent company of UnitedHealthcare, wrote an editorial for the New York Times in which he acknowledged that “the health system does not work as well as it should” and claimed that his mission was to “make it work better.”9

To actually make the health care system better does not allow for easy or simplistic solutions.10 A long-term solution requires creating “a unified and coordinated framework of health care law based on a coherent and evidencebased understanding of the fundamental problems that plague our health care system and an understanding of how a health care system should be constructed so as to overcome these problems.”11 And I do not claim to have the knowledge or outline for that comprehensive solution.

This Article can, however, propose a relatively simple interim policy that will ameliorate the problem of health insurance companies unnecessarily denying health coverage: an excess profits tax imposed on health insurance companies. While the putative purpose of insurance companies is to protect policyholders from unexpected and ruinous financial losses, internally, insurance companies function to earn a profit for their shareholders.12 To the extent an insurance company denies a claim—or even delays payment on that claim—it increases its profits.13 The company, thus, has two competing incentives. On the one hand, its business involves paying for health care. On the other, it is designed to provide a return to its shareholders. While it cannot ignore paying for policyholders’ health care, a health insurance company is going to

face steep pressure to prioritize profits. Although, there is debate over whether shareholder primacy constitutes a legal obligation for corporations or just a generally accepted norm,14 shareholder primacy—that is, whether or not corporations have a legal obligation to maximize shareholder profits—continues to “dominate” thought about corporate governance.15 As a result, many corporations focus on maximizing shareholder profits.16

This Article proceeds as follows: Part I gives a general history of excess profits taxation in the United States. It discusses both why Congress turned to the excess profits tax and retreated from it after the Korean War. Part II highlights the renewed interest in excess profits taxes that largely began during the COVID pandemic. While the pandemic piqued academics’ interest in excess profits taxation, it ultimately did not lead anywhere. Part III shows the impediments that a broad-based excess profits tax faces, which helps to explain why broad-based excess profits taxes have largely been limited to raising revenue during wartime, and why even the disruptions of the pandemic did not bring it back. Part IV then demonstrates why an excess profits tax narrowly focused on the health insurance industry does not face the same impediments a broader excess profits tax faces. In fact, such a narrowly focused tax could be an effective tool in regulating insurance companies to ensure that they do not delay and deny insurance claims to boost shareholder profits. Moreover, if Congress were to earmark revenues from the health insurance excess profits tax to help fund health care access for people who cannot afford it, then such a tax could simultaneously provide regulatory pressure for insurance companies to pay for health care and help those who cannot access insurance to nonetheless receive the health care they need.

To understand how an excess profits tax can help prevent insurance companies from unduly denying coverage to insureds, we must first explore what an excess profits tax is and how it has historically been used in the United States. An excess profits tax is a tax imposed on companies that earn supranormal returns.17 While rare in peacetime, countries often impose excess profits taxes during war and other economic disruptions in an attempt to discourage companies from exploiting the disruption at the expense of consumers (while raising revenue to fund the war at the same time).18

The excess profits tax is almost as old as the modern income tax. In 1917, the United States enacted its first general excess profits tax.19 The initial iteration of the excess profits tax applied to corporations and partnerships organized within the United States.20 On top of its ordinary income tax, an organization subject to the excess profits tax had to pay an additional tax of eight percent on all of its income exceeding $5,000 plus eight percent of its invested capital.21 (Interestingly for our purposes, this excess profits tax excluded income “derived from the business of life, health, and accident insurance combined in one policy issued on the weekly premium payment plan.”)22

Before this initial excess profits tax had any substantive effect, Congress repealed it and replaced it with a new excess profits tax.23 The 1918 excess profits tax only affected corporations; partnerships were no longer subject to its additional rate.24 Like the 1917 version, the replacement excess profits tax was in addition to the ordinary income tax that a corporation owed.25 And like the

1917 version, the 1918 excess profits tax only applied to profits in excess of an exemption amount.26

The new exemption amount was lower than the 1917 version, though. Rather than $5,000 plus eight percent of invested capital, the updated version of the tax only exempted $3,000 plus eight percent of invested capital.27 In 1918, Congress provided progressive excess profits rates instead of the flat rate of Congress’s initial foray into taxing excess profits. Corporations would pay taxes at a thirty percent rate on their profits in excess of eight percent of invested capital that did not exceed twenty percent of invested capital.28 Profits above twenty percent were subject to a sixty-five percent tax.29 To the extent a corporation’s profits exceeded the war profits credit (a complicated calculation taking into account both a $3,000 exemption and a calculation of the taxpayer’s average pre-war income30), that excess faced an eighty percent rate.31 In and subsequent to 1919, the eighty percent bracket fell away and corporations owed an excess profits tax on the first two brackets at a twenty percent and forty percent rate, respectively.32

The 1917 tax was not the first time Congress taxed profits separately from income, and the United States was not the first country to impose an excess profits tax. A year before its first excess profits tax, Congress imposed a 12.5% tax on “the net profits from the sale or disposition of munitions.”33 That paved the way for a more general excess profits tax focusing on all profits, not just those derived from war. The United States followed a number of other countries. Sweden and Denmark appear to have been the first countries to tax wartime profits “in reaction to the spectacular profits of traders and shippers who, due to the allied blockade of the North Sea, possessed the sole remaining trade routes into Germany, through the Baltic Sea.”34 Commonwealth countries like the United Kingdom, Canada, New Zealand, and South Africa and nonCommonwealth countries, such as France and Italy, also joined suit.35

And what attracted all of these countries to excess profits taxation? Primarily a need for revenue.36 World War I was remarkably expensive. The federal government spent over $31 billion on the war effort.37 Congress saw the excess profits tax as a cash cow; in 1917, one newspaper reported that, while an excess profits tax was novel, “[m]embers of the ways and means committee have been impressed with the fact that it would almost solve the revenue question at one step and there is a good chance that it might be adopted.”38 (Interestingly, Congress was considering the revenue-raising potential of a tax on excess profits before entering World War I. The United States did not officially declare war with Germany until April 1917.39 But in January, newspapers were already reporting that an excess profits tax could raise $200 million annually and help the United States pay down the deficit it had accumulated prior to entering the war.)40

But the attractiveness of an excess profits tax was not just its revenue potential: it came with certain equitable advantages. Representative H.M. Green described the excess profits tax as “one of the fairest taxes that can be laid, for it requires funds only from those whose good fortune makes it easy for them to pay.”41 His only objection to the bill Congress was considering was that it taxed too little and that it should reach individuals, not just corporations.42 After all, he explained, Great Britain had imposed an excess profits tax at a higher rate “and still business goes on . . . and will continue.”43

While the excess profits tax had U.S. supporters prior to the country’s entry into the war, the war made it both attractive and palatable. Congressman Frank Mondell found “no war tax more equitable, more fair, more reasonable than a tax upon abnormal and unusual profits arising in time of war.”44 This type of excess profits tax, he continued, was more equitable than an ordinary tax, which applied even to taxpayers with insubstantial profits.45 An excess profits tax, by contrast, only affected supranormal profits.46 And these excess profits would not

address just any supranormal profits; these were supranormal profits in a time of war. “Certainly,” Representative Mondell said, “no one can in reason object to paying back the Government a part of the excess profit that a condition of war gives him.”47 That reasoning was persuasive even to individuals who nominally opposed an excess profits tax. Representative John Sterling explained that “an excess-profits tax [was] not my kind of tax.”48 In ordinary times, he would not support it, but during a war “the committee was absolutely justified in doubling the excess profits tax.”49 The excess profits tax still allowed corporations to earn significant profits, and, as Representative Sterling suggested, “[M]en ought to be willing when the country is in the throes of war, and when the Treasury Department is needing vast sums of money to carry it to a successful issue, to cause men to be satisfied with 10½ cents on every dollar that they have got invested.”50 Wealthy corporations, he said, should not complain about paying excess profits tax.51

While its revenue potential inspired Congress to adopt an excess profits tax and high war-related profits largely justified the tax, there were other considerations hiding in the shadows. Representative Adolph Sabath warned his colleagues that people were unwilling to bear the hardships imposed on them by the “greedy speculators and manipulators” who were “doubling and trebling their profits” as a result of the war.52 He pointed to the “people of Europe, for centuries subjected to oppression, [who] threw off their oppressor and that at a time when it was least expected” warned that the “more tolerant and indulgent and more intelligent and enlightened American people” would do likewise unless Congress relieved them of what he termed “tolerated robbery.”53 In Representative Sabath’s eyes, though, not even an excess profits tax was enough: the “money kings,” who ignored the hardship of their fellow citizens, had increased their profits in spite of both the income and the excess profits taxes.54

Of course, support for the excess profits tax was far from universal. Some of the complaints were sectional: an editorial in the Chicago Tribune accused Congress of burdening the North and discriminating against the South in the

design of the excess profits tax.55 The editorial also claimed that it discriminated against corporations in favor of partnership.56

Other complaints were administrative. For example, Representative Claude Kitchin, a supporter of the excess profits tax, conceded that actually enacting it would involve “inquisitorial features . . . to obtain the information necessary to levy the tax.”57 He believed this would not be a problem for corporations, but would be “embarrassing” to farmers and to small merchants.58 Representative Edward Little could not convince himself “that there is wisdom in the argument that the existence of the machinery for the collection of excess-profits tax justifies its oppressive and inequitable features.”59

The excess profits tax was not only opposed by members of Congress; business interests also opposed it. A mercantile company argued that the excess profits tax both prevented innovation (by “put[ting] a tax on progress”), and made it impossible for corporations to create a “sinking fund against any losses which might be incurred with change of conditions.”60 Without the ability to accumulate and earn profits during prosperous times, businesses would be unable to prepare for emergencies.61 And in 1919, Robert Haig claimed that the excess profits tax “was probably as deservedly unpopular as any tax measure could well be.”62 It raised significant revenue, he conceded, “but when this favorable statement is made, praise must cease. It was unfair in its scope, uneven in its application and so poorly drafted that only by the boldest administrative action could it be made to function at all.”63

No wonder, then, that it ended with the war. The costs of an excess profits tax were bearable during a time of war, but Congress could not justify them when the war, and the need for revenue, ended. With the end of World War I, there was a renewed partisan focus on tax policy.64 Tax reformers focused on

the excess profits tax, which, together with the income tax, had raised about $4 billion in revenue.65 In 1920 Representative William Green boasted that they “took off $450,000,000” in excess profits tax (though they made up a portion of the revenue by adding 2.5% to the corporate income tax).66 Even this significant reduction in the excess profits tax was not the endpoint, though. Generally, “as soon as the crisis/war times were over, such taxes were very difficult to justify/defend during a time of peace and were repealed, or their sunset provisions came into effect.”67 The World War I excess profits tax fit into this pattern: after 1921, this tax was no more.68

Given its unpopularity and cost, the idea of taxing excess profits lay dormant until the late 1930s.69 But in the buildup to World War II, the United States began to increase spending and needed to concomitantly increase revenue.70 President Franklin D. Roosevelt wanted to be cautious with the increased government spending, though: he announced in 1940 that he did not “want to see a single war millionaire created in the United States as a result of this world disaster.”71 Still, while the first revenue bill of 1940 significantly raised personal income tax rates, it did not include an excess profits tax.72 The Committee on Ways and Means indicated, however, that it was not finished: in language echoing the president’s, it wrote that, to prevent “the creation of new war millionaires . . . because of the rearmament program,” it had instructed its “technical assistants and the appropriate Treasury officials to accelerate their work” on a new excess profits tax.73

Accelerate they did. In 1940, Congress enacted a new excess profits tax.74 (By this time, “war-profits taxes were viewed as simply a subcategory of excess profits taxes.”)75 Again, the primary purpose behind the war profits tax was to

raise desperately-needed revenue.76 But, as a newspaper writer pointed out, by World War II, the excess profits tax was not Congress’s only potential revenue tool; it could have raised the necessary $700 million by moderately increasing the corporate income tax and adding “a flat 10 per cent surtax.”77 In addition to revenue, the writer explained, Congress wanted the excess profits tax to “prevent ‘unjust enrichment’ on national defense projects.”78

In fact, by World War II, this idea of preventing unjust enrichment had become central to the identity of the excess profits tax. Representative Donald McLean argued against the excess profits tax, not because he was in favor of unjust enrichment,79 but because he considered it untested and unproved.80 He believed that, rather than an effective tool for preventing unjust enrichment, the excess profits tax had “a strong political appeal, inasmuch as those who hold office by virtue of the success of their appeals to suffrage can argue that by this excess-profits tax they are seeking to prevent the rich from becoming richer.”81 Representative McLean felt that an excess profits tax that had both a revenue goal (raising revenue) and a social purpose (preventing profits beyond a certain level) was oxymoronic: when it achieved the social goal of preventing profits “production stops, profits stop, and Government income in the form of taxes stops.”82

Representative McLean’s objection did not carry the day, though. During World War II, corporations faced excess profits tax rates of up to ninety-five percent.83 A corporation had two methods for calculating normal profits: either by averaging its income between 1936 and 1939 or by exempting between five and eight percent of its invested capital.84 Even though taxpayers could use the higher exemption amount, given the “almost confiscatory” rates of the World War II excess profits tax, Congress also baked in a process for taxpayers to income.”85 The to “make compensatory adjustments”

its “base-period

government also established an Excess Profits Tax Council to administer this relief.86

The fact that Congress had to provide a special procedure to relieve the burden of the World War II excess profits tax, mixed with the general sense of its unfairness in its first iteration, foreshadowed the future of this excess profits tax. After Germany surrendered, the Washington Post wrote that, as a war tax, the excess profits tax needed to end.87 It could not end “upon V-E-day because we will still have war production and war profits, but the administration and the leaders of the congressional committees might well announce an intention to urge the elimination of the excess-profit[s] taxes when the war with Japan is at an end.”88 The next year, in September 1945, Japan surrendered, finally ending World War II.89 Two months later, Congress did what the Post asked, passing the Revenue Act of 1945, which, among other things, repealed the excess profits tax.90 As of January 1946, the United States was not embroiled in war and U.S. corporations did not face additional taxes on their excess profits.91

With the onset of the Korean War, Congress once again needed revenue. At this point, with two attempts at excess profits taxation under its belt, both the government and the public had some sense of what it meant from a revenue perspective. In fact, in 1950, the right-leaning Tax Foundation argued against an excess profits tax, based on the fact that the “United States has had poor experiences with the excess profits tax in World Wars I and II.”92 The Tax Foundation believed that the Korean War was “entirely different from a war emergency” and called for a different approach to revenue.93 But Congress did not heed its advice and yet again turned to the excess profits tax.94 Congress

largely modeled its Korean War excess profits tax after the version it had enacted at the beginning of the 1940s to pay for World War II.95 This time, though, it limited the rate of taxation to thirty percent.96 In addition, Congress was aware, upon enacting this third excess profits tax, of the ephemeral nature of excess profits taxes.97 Instead of viewing it as a permanent addition to the federal income tax, the tax would only apply to excess profits earned before July 1, 1953.98 Congress did not renew or extend the Korean War excess profits tax: it ended in 1953.99

While the United States has not returned to taxing excess profits since the Korean War, like a zombie, the excess profits tax may sleep, but it never fully dies. In the aftermath of the worldwide COVID pandemic, a handful of academics reexamined the idea of taxing excess profits. As early as March 2020, Professors Melani Cammett and Evan Liberman endorsed an excess profits tax as a tool for “provid[ing] enduring social support” and “emphasiz[ing] the value of support in terms of solidarity.”100 An excess profits tax would, they believed, “ensure that businesses do not gain disproportionately from increased government and consumer spending during the pandemic.”101 The excess profits tax, however, was merely incidental to their project, as they were less interested in “material exchanges” and more in “membership in a larger community.”102 As such, while they mentioned an excess profits tax, they did little work in justifying or describing it.

Later that year, Professor Reuven S. Avi-Yonah took on the project of COVID-related excess profits taxation, publishing a proposal for how tax policy should look in the wake of the pandemic.103 In the article, Professor Avi-Yonah

envisioned a tax policy meant to “bolster the social safety net which was revealed as very porous during the pandemic.”104

What did bolstering the social safety net look like in Professor Avi-Yonah’s formulation? It involved two main changes to current tax law. In the longer term, he proposed strengthening the corporate income tax and making it more progressive.105 But in the short term, he recommended that the United States adopt an excess profits tax.106 He pointed out that, during the pandemic, “most American citizens and businesses suffer[ed] catastrophic economic damage[s],” but some corporations saw “their profits rise dramatically because of the pandemic.”107 Particularly, he saw organizations that benefited from the general shutdown, including Amazon and Zoom, as reaping unfair and unequal advantages.108

So, while the pandemic itself was not a war, he believed that reviving the World Wars’ excess profits tax was necessary “to prevent winners from achieving this form of opportunistic unjust enrichment.”109 Because of the dissimilarities between corporations that were likely to benefit from the pandemic, Professor Avi-Yonah did not think that a COVID-era excess profits tax should use the invested capital method to determine normal profits.110 Rather, he proposed looking at average earnings between 2016 and 2019 (the years before the pandemic shut the world down).111 The excess profits should tax earnings in excess of that average (plus a percentage of research and development expenses) at a ninety-five percent rate.112 Critically, he believed that his proposed excess profits tax was justified because federal COVID relief spending would largely redound to the benefit of those profitable companies that would then pay the tax, and fairness demanded that such profits be recaptured by the government.113

Not everybody agreed that the pandemic justified a return to excess profits taxation. Professors Rodney P. Mock and Kathryn Kisska-Schulze argued that

U.S. tax policy only embraces taxing excess corporate profits during war.114 While the Trump administration, as well as several other state and foreign governments, rhetorically framed the public health crisis as a war, it was not literally warfare.115 Introducing an excess profits tax, justified by a rhetoricalbut-not-actual war, they believed, would be inapposite.116 Ultimately, they argued, without a shooting war, there should be no excess profits tax.117

Professor Lillian V. Faulhaber would not limit excess profits tax to wartime, but as she defines them, excess profits taxes should prevent companies from taking advantage of “exogenous shocks such as wartime.”118 This formulation would still limit the availability of excess profits taxes, but would allow for Professor Avi-Yonah’s 2020 proposal, which was meant to respond to the exogenous shock of a worldwide pandemic.

Four years after he proposed a COVID excess profits tax, though, Professor Avi-Yonah revisited the idea of an excess profits tax more expansively.119 Together with Tamir Shanan, he looked at why taxing authorities should impose excess profits taxes.120 While in earlier eras the excess profits tax may have been necessary to respond to exogenous shocks, Professors Avi-Yonah and Shanan point out that today, an excess profits tax can backstop an original purpose of corporate taxation: corporate regulation.121 In its earliest days, the corporate income tax “enable[d] the federal government to exercise supervision over corporations, mainly by obtaining information about corporate operations.”122 But today, most corporations pay taxes at an effective rate below twenty percent, limiting the effectiveness of the corporate income tax as a regulatory tool.123 With such low marginal and effective rates, then, even absent war or other exogenous shocks, an excess profits tax “may indeed be the better solution for regulating powerful global corporate taxpayers that render vital technological

services, life-saving treatment or cures, supply energy that allow basic living needs, and more,” at least if it is designed correctly.124

Because they considered a more progressive corporate tax unlikely, Professors Avi-Yonah and Shanan endorsed a permanent excess profits tax, one that applied irrespective of a corporation’s business.125 Their proposed mode would be expressly regulatory and designed in a way that “would measure empirically the benefits that such activities generate for society and the risk that such activities assume.”126 The level of risk would help determine the tax rate, while it would also consider whether the corporation’s activities benefited local communities or not.127 All of these considerations would nudge corporations toward prosocial behaviors that benefit the broader community rather than imposing costs on that community. Then, even without war or a similar disruption, a country could effectively deploy an excess profits tax. The International Monetary Fund agreed, posting a paper arguing that a permanent excess profits tax was superior to a temporary one because a permanent tax would eliminate “debt bias and distortions to investment decisions” and would not create the same timing incentives that a temporary excess profits tax creates.128

There are impediments to enacting an excess profits tax, of course. The first, as we have seen, is that it tends to be unpopular, and thus politically difficult to enact.129 The excess profits tax may be seen as primarily a wartime tax because the shared sacrifice of war makes unpopular taxes more palatable to the taxpaying public and easier for legislators to justify.130 But when the war goes away, so does the shared sacrifice justification.

In addition, designing and enacting an excess profits tax would be difficult. Congress could adopt the model it last used by taxing profits above a certain return on invested assets or profits in excess of a normal return (calculated with reference to earlier profits).131 However, according to Professors Avi-Yonah and Shanan, this design is “archaic,” and, to be effective, would need to be updated for a twenty-first century economy.132 For instance, a significant percentage of corporations today do not engage in “capital intensive activities,” meaning designing an excess profits tax that looks to invested assets may be ineffective.133 Moreover, because the United States is not currently at war and has emerged from the economic depths of the COVID pandemic, if the legislature wanted to exclude normal profits from the excess profits tax, it would have to decide how to determine normal profits. Between 1998 and 2017, corporate economic profits as a percentage of gross domestic product increased by two percentage points, from 8.9% to 10.9%.134 In designing an excess profits tax, Congress would have to confront the question of whether the normal (excluded) profit is static or shifting; if static, it would have to determine the appropriate time to measure ordinary profits, and if shifting, it would have to design an exclusion that allowed for some amount of increasing profits.

Of course, the United States has overcome the obstacle of structuring an excess profits tax several times in the past 110 years. The administrative difficulties do not represent an insurmountable problem. But the modern world differs from the world in which those earlier taxes existed in one significant way: “the contemporary context for excess profits taxes is fundamentally global today, in a way that excess profit[s] taxation during the world war period was not.”135 In today’s globalized world, capital (and the profits that follow it) are mobile.136 Rather than raise revenue or effectively regulate corporations, a

purely national (as opposed to international) excess profits tax may erode a country’s tax base and accelerate profit-shifting.137 To effectively avoid this type of base erosion, at least with multinational taxpayers, would, likely, require international cooperation.138 But establishing international cooperation on tax matters is difficult—especially if such cooperation is a required component of that tax.139

While these impediments make it harder to design and implement an excess profits tax, they are not insurmountable. Even in the absence of war, it is possible to create a tax that is broadly popular and designed both to raise revenue and to regulate corporate actions. It is possible to determine normal profits, and it is even possible to design an excess profits tax that is not amenable to profitshifting. While narrower than what Professors Avi-Yonah and Shanan envision, an excess profits tax imposed on health insurance companies has the qualities that would be necessary to overcome these impediments.

Born in the early twentieth century, private health insurance is a relatively recent innovation.140 As with most types of insurance, the underlying logic of health insurance is to spread risk.141 “While the risk that any one individual will need substantial health care in any given year may be fairly small, the financial consequences in the event that health care is necessary can be great.”142 An individual may not be able to cover those expenses, but because most people pay more in insurance premiums than they spend in annual health-care costs, an insurance company can pay for substantial care while still earning a profit.143

At the same time, although a market economy encourages profit-seeking, health insurance did not emerge primarily to provide this type of private profit. Rather, reformers in the early twentieth century were trying to “improve society

within the current economic and social structure,” largely by reducing the “economic loss from illness [and] premature death.”144 They hoped health insurance would protect workers from the economic costs of illness.145 These activists ended up preferring—and lobbying for—a compulsory insurance scheme under public supervision but that would potentially be privately administered.146 A number of states introduced bills that would have established compulsory insurance but, by the time the United States entered World War I, the compulsory health insurance movement had peaked.147

Nearly five decades later, the government adopted a limited version of this public health insurance, creating Medicare and Medicaid in 1965.148 Before the adoption of Medicare and Medicaid, the United States broadly adopted private health insurance.149 That health insurance emerged from the milieu of wanting to protect workers from the economic costs of illness and took hold during World War II “when employers sought to get around wartime wage and price controls by offering a new benefit—health insurance plans for employees and their families.”150 After the war, the federal government continued to encourage employer-provided health insurance by subsidizing the costs through the tax system.151

The underlying logic of health insurance is that society wants to protect individuals from the potential catastrophic costs of illness. Therefore, to the extent that a profit motive encourages that protection, insurance companies should be able to profit from providing that protection. But health insurance was not proposed, nor was it broadly adopted, primarily to funnel profits from the insured to the insurance company.

A. An Excess Profits Tax to Protect Individuals

In the struggle between profit maximization and shielding individuals from the economic and health costs of illness, society should put a thumb on the scale in favor of shielding individuals. There are many ways to encourage health insurance companies to give more weight to the well-being of insureds than to the pursuit of extraordinary profits, and one way is to reduce their ability to earn extraordinary profits. If the profit difference between paying and not paying for a medical expense is marginal, then insurance companies have no incentive to withhold payment. That reduction in marginal profits will ultimately allow insurance companies to fulfill their primary societal goal.

An excess profits tax could align with the health insurance industry. As shown, one goal of excess profits taxes is to reduce the amount of profit a company can earn.152 Traditionally, excess profits taxation reduces the ability of certain industries to benefit from government spending and from economic shocks,153 but it does not have to be limited to war and economic shocks.154 One of the principal goals of an excess profits tax is to prevent undue enrichment by those fortunate enough to take advantage of benefits that are not evenly distributed among the population. In his message to Congress encouraging a steeply progressive excess profits tax, President Roosevelt explained that it was the government’s “duty to see that the burden is equitably distributed according to ability to pay so that a few do not gain from the sacrifices of the many.”155

While states generally impose excess profits taxes in response to exogenous shocks, the logic of the excess profits tax is not limited to such events. It is indisputable that health insurance companies have been the beneficiaries of government spending. For example, the Affordable Care Act’s “Medicaid expansion has produced a windfall for health insurers.”156 That windfall comes largely from government spending: the federal government pays most of the cost of the Medicaid enrollees, while states set high payment rates to insurers.157 Even without a war, an excess profits tax would recover a portion of the profits health insurers make by virtue of government policy and spending. In addition

to clawing back these government-created profits, an excess profits tax “takes away the profit incentive”158 to pursue a “delay, deny, defend” strategy.159 Doing so ameliorates the risk of an insurance company “deriving a huge income at the expense of . . . the American people.”160

How should such an excess health insurance profits tax be designed? As with the various incarnations of a war excess profits tax, there is no single answer. Similar to the taxes that have already existed, Congress would need to establish a baseline amount that would be exempt from tax. Additionally, it would have to set a rate on profits in excess of that baseline. Given the different possible approaches, policymakers should establish guidelines for how such a tax should look.

In thinking about a baseline exemption amount, prior excess profits taxes have taken two approaches, as discussed above.161 A company could use either its average profits from several years prior to the war (or, presumably, other economic disruption), or it could exempt a certain return on its invested assets (generally eight percent in prior excess profits taxes).162 While these methods were both logical approaches to an early-to-mid-twentieth-century war tax, neither of these approaches is perfectly consonant with the idea of a tax on the excess profits of a health insurance company. Nonetheless, they may be instructive in designing the tax.

The average profits method is well-suited to a world where the government is trying to claw back corporate profits that relate directly to an economic disruption. Presumably, its pre-disruption profits represent the type of ordinary profits the company can be expected to make in the absence of an economic disruption. That is, if the government wanted to know how much of a company’s profits it derived from war (or pandemic or other disruption), it makes sense to look at the profits the company earned before the disruption occurred. While an imperfect measure—it’s possible for a company to innovate or change, even without disruption—those profits represent roughly the profits it could expect to earn without the disruption.

In the case of health insurance, there is no real identifiable economic disruption. Feinberg points to the 1990s as a shift in insurers’ strategy, as they

became more focused on limiting costs to increase profits.163 However, the 1990s were three decades ago. War excess profits taxes looked back only a handful of years to before the war.164 Additionally, between 2012 and 2021, health insurance companies’ profit margins bounced between 0.6% and 3.8%, with an average profit margin of about 2.2%.165 Is that range an appropriate measure of profits? It could be. Even before the pandemic, health insurance profitability was increasing significantly.166 If the baseline exemption amount were to choose years of extraordinary profits, the excess profits tax would raise little revenue and would provide little regulatory heft. To the extent that the law exempts the current amount of profits insurance companies are providing, we can expect the status quo to continue. That is, perhaps such an excess profits tax would discourage truly egregious health insurance denials, but it would allow the current level of denials to continue.

And that may be good enough. But if this tax were just to apply to insurance companies, it may be worth tailoring it to fit insurance companies. For instance, instead of an exemption based purely on profits, the exemption amount might target a metric that is particular to insurance companies. Return on assets measures how effective a company is “in making money on its investments.”167 But the concern underlying a health insurance excess profits tax is not whether an insurance company can make money on its investments; rather, the concern is whether health insurance companies unreasonably delay and deny claims to increase their profitability.168

A general measure of profits may well achieve the goal of aligning insurance companies’ financial incentives with their customer’s medical needs. A measure more targeted to insurance companies may also achieve it. For example, rather than a general measure of corporate profits, perhaps the health insurance excise tax should exempt profits per insured persons. After all, increasing the number of insured individuals will often increase the amount of profits an insurance

company earns.169 As a policy matter, we do not want to discourage insurance companies from providing insurance to new individuals, which a flat exemption amount might do. A profits-per-insured exemption might, in fact, increase the incentive for insurance companies to offer insurance to individuals with more health costs. The lower profit associated with those individuals would offset the higher profit the company earns on healthier individuals; while the overall profit would increase (assuming the less-healthy individuals provided some degree of profitability), the average of profits per insured individual would fall, reducing the amount of excise tax, if any, that the company owed.170

Once policymakers have decided what constitutes ordinary profits not subject to the excess profits tax, they need to decide the rate at which to tax excess profits. Previous wartime excess profits tax rates have ranged from twenty to sixty-five percent.171 And Professor Avi-Yonah suggests a ninety-five percent rate in his proposal for a COVID excess profits tax.172

To a large extent, the question of precisely what the rate should be goes beyond the scope of this Article. But in setting that rate, policymakers need to consider some important issues. As with many things, the question of the appropriate rate involves trade-offs. The rate needs to be high enough to discourage insurance companies from delaying and denying claims for the sake of increasing their profits. At the same time, it should not be confiscatory. The health care market is not a traditional free market, so supply and demand do not function to control health care costs.173 As a significant participant in the health care market,174 insurance companies may be situated to help control the costs. But controlling the costs only benefits an insurance company if it increases its profits. The premise of this Article is not that health insurance profits are bad— rather, it is that health insurance companies increasing their profits by denying care to its policyholders is a bad policy. To the extent an insurance company can increase its profits by cabining health care costs rather than by denying care to its insureds, it should be allowed to innovate and keep the profits from doing so.

Giving the IRS the responsibility to differentiate excess profits earned by denying coverage from excess profits earned by reducing health care costs is administratively burdensome. Because of the tension between undesirable and desirable increased profits, the tax rate cannot be too high or too low. It is not clear what the equilibrium rate should be. Initially, adopting the rates used in the past—for example, a thirty percent rate on the first chunk of excess profits and a sixty-five percent rate on the second—provides a reasonable starting point. Neither rate is confiscatory, but both claw back a significant portion of a health insurance company’s excess profits.175

Finally, after determining the exemption amount and its rate of the excess profits tax, policymakers need to decide how to use the revenue the tax raises. Generally, the government pools all revenue into a general fund and allocates it to whatever spending needs arise.176 But there are examples of tax regimes that earmark their funds for specific purposes.177 The most well-known example is payroll tax revenue, which is earmarked to fund Social Security.178 But social security taxes are not the only federal taxes specifically earmarked for a particular purpose.179 For example, the Internal Revenue Code imposes an excise tax on the sale of sport fishing equipment180 as well as firearms, shells, and cartridges.181 Rather than putting revenue from those taxes into the general fund,

that revenue is earmarked for wildlife restoration.182 Additionally, taxes on gasoline and diesel are earmarked for infrastructure spending.183 Thus, Congress should earmark revenue from a health insurance excise tax to pay for health care for people who cannot afford insurance or who are underinsured.

The case for earmarking revenues from a health insurance excess profits tax is not immediately obvious. Economists and experts in government budgeting generally dislike earmarking taxes.184 They consider it “wasteful and inefficient.”185 If the only fund for a particular expenditure comes from earmarked taxes, then the government will only be able to spend the amount it raises from that tax, even if there is more need.186 It is also inefficient when there is no link between the taxpayer and the beneficiary.187 Moreover, even where revenues are earmarked for a particular purpose, politicians are often able to redirect the money to other uses.188 As an additional source of revenue, earmarked taxes lend themselves to rent seeking, as potential beneficiaries “look[] to secure portions of the budget to serve their causes.”189

With these potential downsides, why would policymakers consider earmarking the revenue from a health insurance excess profits tax? One reason is to ensure that a link exists between what the tax is attempting to achieve and how its revenues are spent. That is, the purpose underlying this Article’s proposed health insurance excise tax is not principally revenue; its purpose is to ensure that health insurance companies pay out benefits for their insureds. To the extent an insurance company pays enough to avoid earning excess profits, it will not pay this tax. But if it denies coverage to increase its profits, individuals will face increased health care expenses. While the revenues from the health

insurance excise tax may not directly benefit those individuals whose claims were denied, having a pool of money to pay for health care for people who cannot afford it will reduce the risks that people face when it comes to health care.190

Moreover, by linking the expenditures to the tax, the tax becomes both more palatable to and ingrained in the public. President Franklin Roosevelt insisted on funding Social Security through payroll taxes.191 By doing so, he was able to limit expenditures, which could not exceed the amount of revenue payroll taxes generated.192 Equally critical, the payroll tax regime provided a feeling of having “earned” Social Security.193 With the tax payments and Social Security benefits connected in taxpayers’ minds, Roosevelt believed that “no damn politician can ever scrap my social security program.”194 In a similar manner, actually connecting the excess profits tax with a specific beneficial program would provide a popular understanding of the tax—one that could protect it from political opposition.

But perhaps most importantly, earmarking this Article’s proposed health insurance excise tax makes the tax redistributive, with revenue coming from corporate taxpayers with outsized profits. At the same time, it removes the incentives for health insurance companies to earn profits by refusing to pay coverage, and it also taxes the corporations in the best position to bear the cost of taxation.195

B. Mobile Capital and a Health Insurance Excess Profits Tax

There is one additional potential impediment to imposing a modern excess profits tax: the economy today is fundamentally different from the economy the last time the United States enacted an excess profits tax.196 Today, “capital is

fully mobile and firms are . . . incentivized to shift their profits into low-tax regimes.”197 Any company that could successfully shift their excess profits to a foreign jurisdiction could effectively blunt the impact of an excess profits tax.198 With the mobility of capital in the modern economy, even if a government wanted to impose a broad-based excess profits tax, it may have little impact beyond driving capital beyond the country’s borders.

A targeted health insurance excess profits tax would make it increasingly difficult to do so. Income from health insurance is not tremendously mobile.199 Domestic corporations owe taxes on their worldwide income.200 And a U.S. insurance company cannot avoid its tax liability by shifting its insurance contracts to a foreign subsidiary or other related foreign corporation. Foreign corporations owe taxes on their U.S.-source income.201

U.S. tax law sources income from providing health insurance to U.S. residents to the United States.202 In other words, while much income has become mobile and can easily be allocated to different jurisdictions, insurance income is not mobile. Unless an insurance company wants to leave the U.S. market (or convinces all of its insureds to move out of the United States), its income will be U.S.-source income. As U.S.-source income, the United States would be able to tax an insurance company’s income, even if the insurance company itself moved offshore under the ordinary corporate income tax scheme. And that same income would be subject to a U.S. excess profits tax.203

The mobility of capital might create an impediment to a modern, broad-based excess profits tax that did not exist in the mid-twentieth century when the United States last enacted an excess profits tax. But insurance companies’ income is

made up primarily of immobile premiums. For that type of income, which cannot easily be offshored, an excess profits tax is harder to escape without significantly changing the insurance company’s business model.

Health insurance companies have been having a moment—one largely of their own making. Stories of insurance companies denying permission for certain vital medical procedures or medication as well as refusing to reimburse insureds for the medical treatment they received have recently proliferated. While there are likely various reasons for these denials, one reason is that insurance companies increase their profits by denying treatment and care.

Insurance companies may have a compelling reason to focus on profits. Over the last several decades, shareholder primacy has become an ascendant theory of the corporation.204 While many states allow directors to take other stakeholder interests into account, they are generally not required to do so.205 Still, with the relative emphasis on shareholder primacy and the lack of any imperative to take other stakeholders’ (including policyholders’) interests into account, it makes sense that insurance companies would focus on increasing profits at the expense of other insureds.

An excess profits tax on health insurance companies could disrupt this sole focus on shareholder profits. The tax, however designed, would reduce the marginal benefit of additional profits above a set profit level. And if these excess profits are not available to shareholders, then insurance companies would have more space to consider the needs of other stakeholders.

Because the proposed health insurance excess profits tax is meant primarily as a regulatory tax—not a revenue-raising one—the revenue from the tax is of secondary concern; if it entirely met its regulatory goal, it would not provide any revenue. But to ensure that the tax remains focused on encouraging health insurance companies to pay for health care, the government should statutorily earmark revenues to provide medical care for people who cannot otherwise

afford it. This way, not only does the regulatory primacy remain but the tax also provides a second prong of health care.

The public is disillusioned by health insurance providers. But that sense of disillusionment can be ameliorated if insurance companies generally pay for the care for which they have contracted to pay. Ultimately, by reducing an insurance company’s economic benefits from not paying, the excess profits tax can increase Americans’ access to health care and improve their view of the health insurance industry.

--- FOOTNOTES ---

ABSTRACT

* Associate Dean for Academic Affairs and Georgia Reithal Professor of Law, Loyola University Chicago

School of Law.

TABLE OF CONTENTS

INTRODUCTION

1 Reed Ableson, Brian Thompson Was a Veteran Executive at UnitedHealthcare, N.Y. TIMES, (Dec. 11,

2024), https://www.nytimes.com/2024/12/04/health/brian-thompson-unitedhealthcare.html [https://perma.cc/A9FY-FYDF].

2 UnitedHealthcare CEO Killed in New York Tried To Improve ‘Patchwork’ System, Exec Says, ASSOCIATED PRESS (Dec. 13, 2024, at 19:13 ET), https://apnews.com/article/luigi-mangione-unitedhealthcareceo-743e8b3ffb6a03a177c0e6d56f119581 [https://perma.cc/AVX7-RAZZ].

3 Taylor Ardrey, “Delay, Deny, Depose”: Florida Woman Arrested, Accused of Threatening Insurance ET),

Company, https://www.usatoday.com/story/news/nation/2024/12/13/briana-boston-arrested-insurance-company-threatdelay-deny-depose/76956485007/ [https://perma.cc/BCA3-TCCQ].

TODAY

13:24

2024,

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4 See, e.g., Megan Liscomb, “I’ve Lost Trust in the System”: 18 Health Insurance Horror Stories that (Dec. 9, 2024),

Explain Why Americans Are So Angry at These Companies, BUZZFEED https://www.buzzfeed.com/meganeliscomb/health-insurance-horror-stories [https://perma.cc/TBA9-HU5T].

5 Annie Waldman, UnitedHealth Is Strategically Limiting Access to Critical Treatment for Kids with Autism, PROPUBLICA (Dec. 13, 2024, at 06:00 ET), https://www.propublica.org/article/unitedhealthcareinsurance-autism-denials-applied-behavior-analysis-medicaid [https://perma.cc/GGJ4-LRCZ].

6 See id. 7 Id. The article points out that last year applied behavioral analysis cost UnitedHealthcare $290 million,

and in the same year, it had $22 billion in profits. Id.

8 Rebecca Robbins & Reed Abelson, Bipartisan Lawmakers Seek To Break Up Giant Health Care Conglomerates, N.Y. TIMES (Dec. 11, 2024), https://www.nytimes.com/2024/12/11/business/warren-hawleypharmacy-benefit-managers.html [https://perma.cc/2E4N-A6UX].

9 Andrew Witty, UnitedHealth Group C.E.O.: The Health Care System Is Flawed. Let’s Fix It, N.Y. TIMES (Dec. 13, 2024, at 05:04 ET), https://www.nytimes.com/2024/12/13/opinion/united-health-care-brianthompson-luigi-mangione.html [https://perma.cc/SBD9-VNFB].

10 See, e.g., Timothy Stoltzfus Jost, Our Broken Health Care System and How to Fix It: An Essay on Health

Law and Policy, 41 WAKE FOREST L. REV. 537, 539 (2006).

11 Id. 12 While insurance is often framed as “receiving a promise,” that promise has been sublimated in the last several decades. JAY M. FEINMAN, DELAY, DENY, DEFEND: WHY INSURANCE COMPANIES DON’T PAY CLAIMS AND WHAT YOU CAN DO ABOUT IT 4 (2010). In the 1990s, at the behest of consulting firm McKinsey & Company, insurance companies started to focus on eliminating its “greatest expense[:] . . . what it pays out in claims. If it pays out less in claims, it keeps more in profits.” Id. at 5.

13 Jay M. Feinman, The Law of Insurance Claim Practices: Beyond Bad Faith, 47 TORT TRIAL & INS.

PRAC. L.J. 693, 715 (2012).

14 The debate is long-running, and fully explicating it is far beyond the scope of this Article. But the legal argument for shareholder primacy is that “courts have embraced shareholder primacy over a thirty-year period. . . . Shareholder primacy ultimately derives its legitimacy from judicial acceptance and that the obligation it creates demands compliance.” Robert J. Rhee, A Legal Theory of Shareholder Primacy, 102 MINN. L. REV. 1951, 2004 (2018). The counterargument acknowledges that courts pay lip service to shareholder primacy: “[Courts] uniformly refuse to actually impose legal sanctions on directors or executives for failing to pursue one purpose over another. In particular, courts refuse to hold directors of public corporations legally accountable for failing to maximize shareholder wealth.” LYNN STOUT, THE SHAREHOLDER VALUE MYTH: HOW PUTTING SHAREHOLDERS FIRST HARMS INVESTORS, CORPORATIONS, AND THE PUBLIC 34 (2012).

15 Grant M. Hayden & Matthew T. Bodie, Power, Primacy, and the Corporate Law Pivot, 24 U. PA. J.

BUS. L. 885, 897 (2022).

16 See Jill E. Fisch & Steven Davidoff Solomon, Should Corporations Have A Purpose?, 99 TEX. L. REV. 1309, 1328–29 (2021) (“Although we have highlighted the limited basis for treating shareholder primacy as a legal mandate, one response is that the decisions we discuss, coupled with a supportive academic literature, have influenced managerial decision-making and that corporate officials are likely to focus on shareholder value and, even more problematically, on short-term stock price, in making operational decisions.”).

I. EXCESS PROFITS TAXATION IN THE UNITED STATES

17 Paige McHugh, The Case for A Global Excess Profits Tax: A Response to Dr. Tarcísio Diniz Magalhães

& Professor Allison Christians, 29 IND. J. GLOB. LEGAL STUD. 231, 232 (2022).

18 See, e.g., Alfred G. Buehler, The Excess Profits Tax, 214 ANNALS AM. ACAD. POL. & SOC. SCI. 86, 86 (1941) (“The discussion of the excess profits tax revealed that it was designed to raise revenues for national defense while preventing the rise of war millionaires by limiting the profits from munitions and other industries.”).

19 George K. Yin, James Couzens, Andrew Mellon, the “Greatest Tax Suit in the History of the World,”

and the Creation of the Joint Committee on Taxation and Its Staff, 66 TAX L. REV. 787, 796 (2013).

20 War Revenue Act of 1917, ch. 159, § 201, 39 Stat. 1000 (1917). The excess profits tax also applied to

the U.S.-source income of foreign and territorial corporations and partnerships. Id.

21 George E. Holmes, The Excess Profits Tax of 1917, 4 BULL. OF NAT’L TAX ASS’N 7, 7 (1918). 22 War Revenue Act of 1917 § 201. 23 Peter A. Prescott, Taxing Luck, 83 MISS. L.J. 117, 129 (2014). 24 Revenue Act of 1918, ch. 18, § 301(a), 40 Stat. 1088 (1919). 25 Id.

26 Id. 27 Id. § 312. 28 Id. § 301(a). 29 Id. 30 Id. § 311. 31 Id. § 301(a). 32 Id. § 301(b). 33 Rodney P. Mock & Kathryn Kisska-Schulze, Saving the Nonessential with Radical Tax Policy, 90 U.

CIN. L. REV. 197, 237 (2021).

34 Eric Kades, Windfalls, 108 YALE L.J. 1489, 1540 (1999). 35 Mock & Kissa-Schulze, supra note 33, at 238.

36 Id. 37 JOHN MAURICE CLARK, THE COST OF THE WORLD WAR TO THE AMERICAN PEOPLE 112 (1931). 38 Many Schemes Proposed, TIPTON DAILY TRIB., Jan. 9, 1917, at 7. 39 DAVID F. BURG & L. EDWARD PURCELL, ALMANAC OF WORLD WAR I 161 (1998). 40 New Revenue Bill May Be Felt Here, SEYMOUR DAILY REPUBLICAN, Jan. 9, 1917, at 1. 41 55 CONG. REC. 2226 (1917). 42 Id. 43 Id. 44 55 CONG. REC. 2544 (1917). 45 Id. 46 Id.

47 Id. 48 55 CONG. REC. 2346 (1917). 49 Id. 50 Id. 51 Id. 52 55 CONG. REC. 3982 (1917). 53 Id. at 3982–83. 54 Id. at 3982.

55 See 54 CONG. REC. 2568 (1917). 56 Id. 57 Norborne Robinson, Revenue Bill Will Be Passed at This Session, BUFFALO NEWS, Jan. 12, 1917, at 16. 58 Id. 59 55 CONG. REC. 2296 (1917). 60 59 CONG. REC. 9021 (1920). 61 Id. 62 Robert Murray Haig, The Revenue Act of 1918, 34 POL. SCI. Q. 369, 382 (1919). 63 Id. The excess profits tax was so unpopular, in fact, that T.S. Adams worried that its continuation would “endanger the life of the income tax itself,” and, for that reason (among others), it needed to be repealed with the end of the war. Thomas S. Adams, Should the Excess Profits Tax Be Repealed, 35 Q.J. ECON. 363, 370 (1921).

64 STEVEN A. BANK, KIRK J. STARK & JOSEPH J. THORNDIKE, WAR AND TAXES 79 (2008).

65 Id. 66 61 CONG. REC. 8084 (1920). 67 Reuven S. Avi-Yonah & Tamir Shanan, Rethinking Taxing Excess Profits, 77 TAX LAW. 269, 276

(2024).

68 Steven A. Bank, Is Double Taxation a Scapegoat for Declining Dividends? Evidence from History, 56

TAX L. REV. 463, 499 (2003).

69 Anita Wells, Legislative History of Excess Profits Taxation in the United States in World Wars I and II,

4 NAT’L TAX J. 237, 237 (1951).

70 Joseph J. Thorndike, How to Write Tax Laws and Irritate People: The 1940 Excess Profits Tax, 175 TAX

NOTES FED. 1649, 1649 (2022).

71 Id. 72 Id. at 1649–50. 73 86 CONG. REC. 8585 (1940). 74 Robert Braucher, The Renegotiation Act of 1951, 66 HARV. L. REV. 270, 274 (1952). 75 Bret Wells, The Foreign Tax Credit War, 2016 B.Y.U. L. REV. 1895, 1900 n.12 (2016).

76 David Lawrence, Consider Excess Profits Tax, LA CROSSE TRIB., Aug. 9, 1940, at 6. 77 Id. 78 Id. 79 87 CONG. REC. 1282 (1941) (“I do not believe in unjust enrichment any more than anybody else.”). 80 Id. at 1281 (“[T]his excess profits tax proposition is in the experimental stage.”). 81 Id. at 1282. 82 Id. 83 Lilian V. Faulhaber, Lost in Translation: Excess Returns and the Search for Substantial Activities, 25

FLA. TAX REV. 545, 581 (2022).

84 Id. 85 Note, Excess Profits Tax Relief Under Section 722, 62 HARV. L. REV. 679, 679–80 (1949).

86 William L. Cary, Pressure Groups and the Revenue Code: A Requiem in Honor of the Departing

Uniformity of the Tax Laws, 68 HARV. L. REV. 745, 756 (1955).

87 90 CONG. REC. 7660 (1944). 88 Id. 89 Thomas F. Brier, Jr., Obtaining Relief Under the Convention Against Torture: On the Issue of Volition, 7 PENN ST. J.L. & INT’L AFF. 418, 421 (2019) (“On September 2, 1945, Japanese representatives signed the official Instrument of Surrender, marking the formal capitulation of Japan to the Allied Powers and, consequently, the end of World War II.”).

90 Revenue Act of 1945, Pub. L. No. 79-453 § 122, 59 Stat. 556, 568 (1945). 91 Id. In fact, the Revenue Act of 1945 cut federal revenue by $6 billion. BANK, STARK, & THORNDIKE,

supra note 64, at 107.

92 Tax Foundation Staff, Financing Defense: Is an Excess Profits Tax the Solution?, TAX FOUND. (Dec. 1,

1950), https://taxfoundation.org/research/all/federal/financing-defense-excess-profits-tax-solution/ [https://perma.cc/6L26-SYYZ].

93 Id. 94 Rogers Corp. v. C.I.R., 290 F.2d 278, 279 (2d Cir. 1961).

II. A RENEWED INTEREST IN EXCESS PROFITS

95 Id. (“Involved in this case are the applicable provisions of the Korean War Excess Profits Tax Law, . . . an Act which was largely modeled upon the World War II Excess Profits Tax enacted by the Congress in 1942.”).

96 Faulhaber, supra note 83, at 581. 97 See Excess Profits Tax Act of 1950, Pub. L. No. 81-909 § 430, 64 Stat. 1137–38 (1950). 98 Id. 99 Peter Miller, Capital Gains Taxation of the Fruits of Personal Effort: Before and Under the 1954 Code,

64 YALE L.J. 1, 62 (1954).

100 MELANI CAMMETT & EVAN LIEBERMAN, BUILDING SOLIDARITY: CHALLENGES, OPTIONS, AND

IMPLICATIONS FOR COVID-19 RESPONSES 28 (2020), safrawhitepaper4c.pdf [https://perma.cc/4UH9-UKLC].

101 Id. 102 Id. 103 Reuven S. Avi-Yonah, COVID-19 and US Tax Policy: What Needs to Change?, 48 INTERTAX 790, 790

(2020).

104 Id. 105 Id. at 791. 106 Id. 107 Id. at 790. 108 Id. 109 Id. 110 Id. at 791. 111 Id. 112 Id. 113 Id.

114 Rodney P. Mock & Kathryn Kisska-Schulze, Saving the Nonessential with Radical Tax Policy, 90 U.

CIN. L. REV. 197, 237 (2021).

115 Id. at 235–36. 116 Id. at 241 (“COVID-profiting businesses do not resemble war-profiting merchants.”). 117 Id. at 244. 118 Lilian V. Faulhaber, Lost in Translation: Excess Returns and the Search for Substantial Activities, 25

FLA. TAX REV. 545, 582 (2022).

119 See Reuven S. Avi-Yonah & Tamir Shanan, Rethinking Taxing Excess Profits, 77 TAX LAW. 269, 298–

99 (2024).

120 See id. at 294. 121 Id. 122 Id. at 293–94. 123 Id. at 294.

III. IMPEDIMENTS TO AN EXCESS PROFITS TAX

124 Id. 125 Id. at 295. 126 Id. 127 Id. 128 Shafik Hebous, Dinar Prihardini & Nate Vernon, Excess Profit Taxes: Historical Perspective and (Int’l Monetary Fund, Working Paper No. 22/187, 2022),

Contemporary Relevance 15 https://www.imf.org/en/Publications/WP/Issues/2022/09/16/Excess-Profit-Taxes-Historical-Perspective-andContemporary-Relevance-523550 [https://perma.cc/W8B2-V7AU].

129 See supra notes 54–69 and accompanying text. 130 Cf. Diane L. Fahey, The Movement to Destroy the Income Tax and the IRS: Who Is Doing It and How They Are Succeeding, 15 FLA. TAX REV. 157, 185–86 (2014) (“The FDR Administration was able to achieve this change mainly by tying the tax to the war effort and shared sacrifice.”).

131 See supra notes 83–84 and accompanying text. 132 Avi-Yonah & Shanan, supra note 119, at 294. 133 Avi-Yonah, supra note 103, at 791. 134 MOLLY SAUNDERS-SCOTT, CONG. BUDGET OFF., TRENDS IN CORPORATE ECONOMIC PROFITS AND TAX PAYMENTS, 1998 TO 2017 2, 4 (2023), https://www.cbo.gov/publication/59149 [https://perma.cc/2LJQ-YZ8G]. Critically, in thinking about an equitable corporate income tax, while corporate economic income rose as a percentage of GDP over those two decades, corporate income tax as a percentage of GDP did not show a similar upward trend. Id. Moreover, this divergence was clear before the 2017 tax law, the Tax Cuts and Jobs Act, which reduced the corporate income tax from 35% to 21%. Id.; Tax Cuts and Jobs Act (TCJA), TAX FOUND.: TAXEDU, https://taxfoundation.org/taxedu/glossary/tax-cuts-and-jobs-act/ [https://perma.cc/F7BM-TADC] (last visited Aug. 24, 2025).

135 Tarcísio Diniz Magalhães & Allison Christians, Rethinking Tax for the Digital Economy After COVID-

19, 11 HARV. BUS. L. REV. ONLINE 1, 4 (2021).

136 Allison Christians & Tarcísio Diniz Magalhães, It’s Time for Pillar 3: A Global Excess Profits Tax for

COVID-19 and Beyond, 98 TAX NOTES INT’L 507, 508 (2020).

IV. A HEALTH INSURANCE EXCESS PROFITS TAX

137 Mock & Kisska-Schulze, supra note 33, at 240. 138 Allison Christians & Tarcísio Diniz Magalhães, The Case for Taxing Away Unsustainable Profits, 91

GEO. WASH. L. REV. 697, 744–45 (2023).

139 See Amy Youngblood Avitable, Saving the World One Currency at a Time: Implementing the Tobin

Tax, 80 WASH. U. L.Q. 391, 407 (2002).

140 Laura D. Hermer, Private Health Insurance in the United States: A Proposal for a More Functional

System, 6 HOUS. J. HEALTH L. & POL’Y 1, 6 (2005).

141 Id. at 8. 142 Id. 143 Karen A. Jordan, ERISA Pre-Emption: Integrating Fabe into the Savings Clause Analysis, 27 RUTGERS L.J. 273, 294 (1996) (“[I]f there is a large number of individuals participating in the plan there is a good chance that there will be more healthy persons than the few unhealthy ones who will have claims.”).

144 Odin W. Anderson, Health Insurance in the United States: 1910–1920, 5 J. HIST. MED. & ALLIED SCI.

363, 364 (1950).

145 Id. 146 Id. at 366. 147 Leon Applebaum, The Development of Voluntary Health Insurance in the United States, 28 J. INS. 25, 27 (1961). The movement was largely undermined by the insurance industry, which worried about the sickness benefits, and fraternal orders, who worried that compulsory insurance would undermine their social significance. Id.

148 Bradley J. Sayles, Preemption or Bust: A Review of the Recent Trends in Medicaid Preemption Actions,

27 J. CONTEMP. HEALTH L. & POL’Y 120, 122 (2010).

149 Applebaum, supra note 147, at 25. 150 Naomi Cahn & June Carbone, Uncoupling, 53 ARIZ. ST. L.J. 1, 24 (2021). 151 Id.

152 See supra note 78 and accompanying text. 153 See supra note 118 and accompanying text. 154 See supra notes 118–124 and accompanying text. 155 Buehler, supra note 18, at 86. 156 Brian Blase, The ACA Is Making Health Insurers Much Richer, PARAGON HEALTH INST. (Mar. 20,

2024), https://paragoninstitute.org/newsletter/the-aca-is-making-health-insurers-much-richer/ [https://perma.cc/F6AP-HFP3].

157 Id.

158 John H. Myers, Excess Profits Tax on Individuals, 19 TAXES 710, 710 (1941). 159 FEINMAN, supra note 12, at 6. 160 Myers, supra note 158. 161 See supra note 84 and accompanying text. 162 Id.

163 FEINMAN, supra note 12, at 5. 164 See supra notes 84–85 and accompanying text. 165 NAT’L ASS’N OF INS. COMM’RS, U.S. HEALTH INSURANCE INDUSTRY ANALYSIS REPORT: 2021 ANNUAL (2021), https://content.naic.org/sites/default/files/2021-Annual-Health-Insurance-Industry-

RESULTS, 1–2 Analysis-Report.pdf [https://perma.cc/A7GK-BDEZ].

166 Bertha Coombs, As Obamacare Twists in Political Winds, Top Insurers Made $6 Billion (Not That There Is Anything Wrong With That), CNBC (Aug. 6, 2017, at 10:16 ET), https://www.cnbc.com/2017/08/05/tophealth-insurers-profit-surge-29-percent-to-6-billion-dollars.html [https://perma.cc/9USY-EQU2].

167 Neil McCarthy, M&A in the Banking Industry: Investment Banking Perspective, 1 FORDHAM FIN. SECS.

& TAX L. F. 17, 25 (1996).

168 FEINMAN, supra note 12, at 8.

169 See Blase, supra note 156. 170 Remember, the primary goal of a health insurance excise tax is not revenue, though revenue is important. See supra notes 118–124 and accompanying text. Rather, the goal is for insurance companies to provide coverage to individuals and to ensure that that the companies pay out on insureds’ claims. See supra Part 0. To the extent that the excess profits tax encourages insurers to pay claims rather than pay taxes, that is a good result.

171 See supra notes 26–30 and accompanying text. 172 See supra note 112 and accompanying text. 173 Thomas Bodenheimer, High and Rising Health Care Costs. Part 1: Seeking an Explanation, 142

ANNALS OF INTERNAL MED. 847, 850 (2005).

174 Id.

175 This progressive rate structure assumes, in large part, that excess profits from denying care and excess profits from reducing costs will be similar in scope. If we believe that excess profits from denying care would be significantly smaller, while reducing costs would provide moonshot profits to companies, it may be worth considering a regressive structure for the excess profits tax. A higher rate (even ninety-five percent) on the first segment of profits per insured would discourage insurance companies from denying small claims because they would only keep five percent of the additional profits generated. But if an insurance company innovated in a way that took its excess profits above the first cutoff, it could be taxed at a lower rate (such as twenty percent). Keeping more of the higher profits generated by truly systemic changes would continue to discourage insurance companies from denying claims, while encouraging them to innovate in ways that would significantly decrease the cost of health care.

176 Avi-Yonah & Shanan, supra note 67, at 296 (noting governments generally “pool[] tax revenue into a

general fund and then allocat[e] it to various government spending programs”).

177 An “earmarked” tax is one where revenue from the tax is explicitly designated to pay for a specific

public service. James M. Buchanan, The Economics of Earmarked Taxes, J. POL. ECON. 457, 457–58 (1963).

178 Allison M. Whelan, Denying Tax-Exempt Status to Discriminatory Private Adoption Agencies, 8 U.C.

IRVINE L. REV. 711, 758 (2018).

179 In this Article, I am looking specifically at federal taxes. There are, however, many state and local taxes where revenue is earmarked for a particular purpose. For instance, many cities have earmarked particular tax revenue for arts funding. Michael Rushton, Earmarked Taxes for the Arts: US Experience and Policy Implications, 6 INT’L J. ARTS MGMT. 38, 38 (2004).

180 I.R.C. § 4161(a)(1) (2018). 181 Id. § 4181 (2018).

182 16 U.S.C. § 669b (2018). The firearm excise tax even applies to nonsporting firearms. Mars Equip. Corp. v. United States, 437 F. Supp. 97, 99 (1977), aff’d, 580 F.2d 248 (1978). The earmarking applies whether or not the guns will be used in the environment that the revenues go toward. Id.

183 David Herzig, Examining the Gasoline Tax, 139 TAX NOTES 1291, 1291 (2013). 184 Walter W. McMahon & Case M. Sprenkle, A Theory of Earmarking, 23 NAT’L TAX J. 255, 255 (1970). 185 Ranjit S. Teja, The Case for Earmarked Taxes, 35 STAFF PAPERS (INT’L MONETARY FUND) 523, 523

(1988).

186 Amy J. Holzinger, Eco-Taxes in the European Union: The Need for a Uniform Structure, 21 WIS. INT’L.

L.J. 185, 195 (2003).

187 Yuval Feldman & Oren Perez, Motivating Environmental Action in a Pluralistic Regulatory Environment: An Experimental Study of Framing, Crowding Out, and Institutional Effects in the Context of Recycling Policies, 46 L. & SOC’Y. REV. 405, 414–15 (2012).

188 William F. Shughart II & Josh T. Smith, The Broken Bridge of Public Finance, 183 PUB. CHOICE 315, 333 (2020). In large part, it looks like elected officials redirect earmarked revenue to more salient and popular programs that will increase the likelihood that they will be reelected. Id. at 317.

189 Feldman & Perez, supra note 187, at 415.

190 On top of that, public choice theorists would argue that earmarking is not inefficient but rather that it better reflects voter choices. Teja, supra note 185, at 526. That is, where revenues go into a general fund, voters (or legislators) must vote twice: first, they determine how much revenue to collect and, second, how to allocate that revenue. Id. With earmarked revenue, though, there is a single vote that determines both how much revenue the government will collect and where that revenue will go. Id.

191 JOSEPH J. THORNDIKE, THEIR FAIR SHARE: TAXING THE RICH IN THE AGE OF FDR 178 (2013). 192 Id. at 179–80. 193 Id. at 180. 194 Mark H. Leff, Taxing the “Forgotten Man”: The Politics of Social Security Finance in the New Deal,

70 J. AM. HIST. 359, 374 (1983).

195 Cf. Myers, supra note 158, at 710 (“This tax takes money away from the ones in the best position to

stand the strain of an extra tax and takes away the profit incentive of the so-called war-mongers.”).

196 Magalhães & Christians, supra note 135, at 7.

197 Id. 198 Id. 199 AptarGroup Inc. v. Comm’r of Internal Revenue, 158 T.C. 110, 112 (2022). 200 Id. (“The United States taxes its citizens and domestic corporations on worldwide income.”). 201 I.R.C. §§ 11(d), 881(a), 882(a) (2018). 202 Id. § 861(a)(7)(A) (2018). 203 Even if a U.S. insurance company were to put its reserves in a foreign corporation and invest them through that foreign corporation, the investment income would not escape U.S. taxation. Depending on the level of ownership, that foreign corporation would likely be a controlled foreign corporation, id. § 957(a)–(b) (2018). Or it may also be a passive foreign investment company. Id. § 1297(a) (2018). Both provisions effectively cause (or encourage) domestic taxpayers to immediately include and pay taxes on their share of the foreign corporation’s income. Ernest R. Larkins, International Commerce Through a Foreign Subsidiary: Navigating the Anti-Haven Tax Shoals of the Internal Revenue Code, 9 INT’L TAX & BUS. LAW. 64, 64 (1991) (“There are several Internal Revenue Code provisions, however, that curb or, in some cases, totally eliminate deferral benefits sought in this manner. Among these are the formidable Subpart F rules for controlled foreign corporations and the passive foreign investment company provisions.”).

CONCLUSION

204 See Margaret M. Blair & Lynn A. Stout, Director Accountability and the Mediating Role of the Corporate Board, 79 WASH. U. L.Q. 403, 405–06 (2001) (“The idea that shareholders alone are the raison d’être of the corporation dominates contemporary discussion of corporate governance, both outside and, in many cases, inside the boardroom.”).

205 Thomas Clarke, The Long Road to Reformulating the Understanding of Directors’ Duties: Legalizing

Team Production Theory?, 38 SEATTLE U. L. REV. 433, 450 (2015).