Obama Under Pressure to Push Unpopular Tax on Health Benefits

Nicholas Albano sits outside New York's Memorial Hospital. President Obama's call for health reform could include a new tax on health benefits.
Nicholas Albano sits outside New York's Memorial Hospital. President Obama's call for health reform could include a new tax on health benefits. (By Daniel Acker -- Bloomberg News)
By Lori Montgomery and Ceci Connolly
Washington Post Staff Writers
Monday, June 15, 2009

The White House is caught in a battle within its own party over how to finance a comprehensive overhaul of America's health-care system, as key Democrats advocate a tax plan that could require President Obama to break his campaign pledge not to raise taxes on the middle class.

Sensitive to voter anxiety about a soaring federal deficit, Obama and congressional leaders have vowed to pay for a sweeping expansion of the health-care system -- expected to cost more than $1 trillion over the next decade -- without additional borrowing.

Much of the money is likely to come from reining in spending on federal health programs for the elderly and the poor. Obama has proposed trimming more than $600 billion from Medicare and Medicaid by 2019 -- including more than $300 billion in cuts unveiled in his Saturday radio and Internet address -- which could fulfill the promise to curb the growth of federal health spending.

The rest of the cash will probably come from new taxes. But Democrats are deeply divided over which taxes to raise, and the issue has become a central stumbling block in the push to enact legislation by fall.

In recent days, Obama has revived a tax plan he first offered in February: limiting itemized deductions for the nation's 3 million highest earners. Polls show that the idea is popular -- it was Obama's biggest applause line last week at an event in Wisconsin -- and it would enable him to abide by a campaign pledge to pay for coverage for the uninsured with new taxes on the rich.

"He believes this is the most equitable way to do this," said senior White House strategist David Axelrod. "It places the burden on people who can most afford it."

But many Democrats, particularly in the Senate, have balked at the idea, saying they prefer a tax that has some hope of winning Republican support. In legislation that could be unveiled as early as this week, Senate Finance Committee Chairman Max Baucus (D-Mont.) is expected to propose a new tax on the health benefits that millions of Americans currently receive tax-free through employers.

Economists say taxing employer-sponsored benefits would help trim runaway health costs and force society to broadly share the burdens of reform. The idea also has bipartisan appeal. Former president George W. Bush and Sen. John McCain (Ariz.), the 2008 GOP presidential candidate, championed a form of the tax; so did Obama advisers Jason Furman and Ezekiel Emanuel before they joined the administration.

"The Democrats are trying to figure out whether they can do health-care reform by themselves without Republicans, or whether they need to adopt some Republican ideas to get a health-care plan," said Chris Edwards, director of tax policy at the libertarian Cato Institute. Taxing health benefits "could be the center of a bipartisan agreement," he said.

But political analysts say the idea is treacherous, especially for Obama. Baucus is considering a tax on employer-sponsored premiums in excess of $15,000 a year, Senate aides said, a plan that would strike many of the very families Obama has vowed to protect from a tax increase. Yesterday, top administration officials pushed back forcefully against the tax, which Obama criticized during the campaign.

"The president starts with the premise that 180 million Americans have health coverage through their employer, that attacks on those benefits may dismantle that marketplace," Health and Human Services Secretary Kathleen Sebelius said on CNN.

Two-thirds of Americans under age 65 get coverage through an employer -- more than 158 million people, according to the Kaiser Family Foundation. In 2008, only about one in five employer-sponsored plans carried the high premiums likely to be hit by the tax.

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