Which tax should rise to pay for health care overhaul?

McClatchy NewspapersJuly 30, 2009 

WASHINGTON — Congressional negotiators are divided over how to raise taxes to pay for overhauling the nation's health care system, as key players disagree over whether to increase income taxes on wealthy people or find alternatives such as taxing insurers that sell high-end policies.

Lawmakers also face another problem: They're confronting the fear that's made it hard to raise taxes for more than 30 years. Republicans and moderate Democrats think that any tax increase is political poison back home.

Republicans are pouncing on Democrats, charging that the party is eager to add a new tax burden to already-strapped constituents in the midst of a recession.

"I think the American people deserve the truth about the Democrats' $1.6 trillion takeover of our health care system: more bureaucracy, more taxes, more mandates and more government," said House of Representatives Republican leader John Boehner of Ohio, a complaint that he and other Republican lawmakers repeat daily.

The current House Democratic plan would raise an estimated $543.9 billion over 10 years by imposing what it calls a "graduated surcharge" on higher-income earners.

The total cost of the party's health care plan is estimated at $1.5 trillion, about $1 trillion more than the tax surcharge would raise. The other $1 trillion is supposed to come from a combination of spending cuts, business taxes and penalties for employers and individuals who don't get coverage.

Under the surcharge plan, beginning in 2011, couples who file jointly with adjusted gross incomes between $350,000 and $500,000 would pay an additional 1 percent in income tax, while those with incomes of $500,000 to $1 million would pay another 1.5 percent.

The surcharge would apply only to incomes above the minimum amounts. Those rates could go up to slightly after two years if health cost savings aren't achieved. Families with incomes of more than $1 million would be hit with a 5.4 percent surcharge.

The most widely heard criticism is that small businesses will be hurt. Surcharge backers cite data from Congress' Joint Committee on Taxation that indicate that 96 percent of small businesses wouldn't be affected.

Still, many Democrats remain nervous.

"Businesses that have revenues of $400,000 or $350,000 don't feel like they're millionaires," said Senate Small Business Committee Chairwoman Mary Landrieu, D-La. "They don't feel rich; they feel like they're just hardworking Americans."

Another problem, said Sen. Kent Conrad, D-N.D., is that selling the surcharge as part of a health care overhaul is tough, because it's hard to explain to constituents how raising general tax rates affects health care.

For all these reasons, said Sen. Olympia Snowe, R-Maine, "the surcharge is not even on the table here," in bipartisan negotiations among members of the tax-writing Senate Finance Committee.

What is on the table there is an excise tax on insurance companies that offer expensive policies. Legislation that the Senate Finance negotiators are considering would cost about $900 billion, and the aim is to have about one-third of it come from taxes.

While details are still being worked out, and therefore precise estimates of potential revenue aren't available, senators are talking about imposing a tax on insurers that offer policies worth at least $25,000, though some discussions have put the figure as low as $16,000.

The White House has signaled its tentative approval of the general idea. "I haven't seen the details of this yet, but it may be an approach that doesn't put additional burdens on middle-class families," Obama said on PBS' "NewsHour" last week.

"My whole goal is not to add burdens to folks who are already having tough times affording insurance, but actually to relieve it. And so I've got to look at the details of that before I make any kind of final determination."

Skeptics from both parties counter that such a tax would wind up being paid by premium holders.

Consumers "know when politicians talk about raising taxes on businesses, it's average Americans who end up shouldering most of the burden," said Senate Republican leader Mitch McConnell of Kentucky.

There are also questions about how much money the tax could raise. The Kaiser Family Foundation, which studies health issues, found that the average family premium on coverage obtained through employers last year was $12,680 and the average individual premium was $4,704. Kaiser estimated that, among workers with family coverage from their employers, 0.3 percent had plans worth more than $25,000.

Leonard Burman, the director of the Urban Institute-Brookings Institution Tax Policy Center, still thought that the tax could be politically viable.

"Economics 101 tells us that it doesn't matter whether the seller or buyer writes the check to the Treasury: The after-tax price facing seller and buyer is the same," he said, "but politically, having insurers 'pay' the tax may avoid a major political problem."

The tax has some potential to survive. House Democratic leaders have signaled privately that they could accept it, so long as they can explain that consumers wouldn't end up paying for it.

Another idea, approved by the Senate Health, Education, Labor and Pensions Committee, is to impose a fee on most employers who don't offer employees coverage or who pay less than 60 percent of their employees' monthly premiums.

The fee would be $750 per full-time employee and $375 per part-time employee, but it isn't seen as the ultimate answer for revenue-raising, since it's estimated to generate only about $52 billion over 10 years.

The key to any successful tax increase, Democratic Senate leaders said, is that the public must be able to see results.

"Of course, any taxes are not popular, but the current health care system is not popular either," said Senate Assistant Majority Leader Richard Durbin, D-Ill. If lawmakers can show how the taxes are helping to make the system better, he said, it could be an easier sell.

ON THE WEB

House Democratic leaders' fact sheet on health care taxes

House Democratic leaders' health care bill

Senate Health Committee health care bill

Kaiser Family Foundation report on insurance premiums

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Lawmakers report health care progress in House, Senate

Slipping in polls, Obama tries to shore up health overhaul

Despite Obama's health pitch, Congress continues squabble

For more McClatchy politics coverage visit Planet Washington

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