Congress Targets Wealthiest Earners for Health Reform Funds

Sen. Max Baucus proposes taxing health benefits for the wealthy.
Sen. Max Baucus proposes taxing health benefits for the wealthy. (Brendan Smialowski - Getty Images)
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By Shailagh Murray
Washington Post Staff Writer
Friday, July 10, 2009

House and Senate negotiators are looking to wealthy individuals to pay much of the $1 trillion price tag for their plan to reform health care, though they are struggling to agree on the most viable option for obtaining that new revenue.

Lawmakers said they have made significant strides on the legislation's policy details as they seek to drive down health-care costs and expand coverage to up to 50 million people. But Democrats also have pledged to meet President Obama's promise of making the package deficit-neutral, something that is almost certain to require hefty tax increases in the midst of an economic downturn. Most increases under consideration would go into effect next year.

Much of the revenue burden could fall on a privileged few. The House Ways and Means Committee is close to completing legislation expected to include a surtax of up to 3 percent on households with incomes that exceed $250,000, pushing the top rate over 40 percent, assuming President George W. Bush's 2001 tax cuts are allowed to expire next year as scheduled.

The Senate Finance Committee is weighing a "millionaires' tax," a surcharge on health benefits for top earners and a Medicare tax on capital-gains income. And still on the table is Obama's proposal to limit deductions for wealthy taxpayers.

The haggling over the details of the new revenue sources could delay action on the legislation, especially in the Senate, where negotiators aim to pass a bipartisan bill by the August recess but are now headed back to the drawing board to fill a $320 billion hole created this week when one key tax increase fell out of contention. Under pressure from colleagues in swing states, Finance Committee Chairman Max Baucus (D-Mont.) has backed off from a tax on employer-provided health benefits that would have hit middle-income households. Baucus is now shopping a revised version that would apply only to upper-bracket taxpayers, but some Democratic leaders remain skeptical.

The House and Senate also are considering new levies on sugary beverages and alcohol that would apply across the board. But the prospect of raising taxes on anyone in a gloomy economic climate has sent some Democrats scrambling to find additional cost savings on top of the $500 billion that negotiators have identified in Medicare and Medicaid, to cover about half of the total reform tab. "We shouldn't raise any revenues that aren't needed," said Sen. Kent Conrad (D-N.D.), a Finance Committee member.

"We're going to need to do the majority by cost cutting, but we also have to figure out some revenues," said Sen. Charles E. Schumer (D-N.Y.), another member of the panel. But he said the targets are numerous, and he predicted, "We will be able to pay for this in a bipartisan way."

And 40 fiscally conservative Democrats have signed a letter to House Speaker Nancy Pelosi (D-Calif.) expressing "strong reservations about the process and direction" of the House bill, particularly its failure to rein in health-care costs over the long term. The letter said the House bill needs significant work and urged Pelosi to slow its pace through the chamber.

In the Senate, about half of the revenue options under review would specifically target the wealthy, senior aides said. One option would apply a 1.45 percent payroll tax on the capital gains of high-income investors. Preliminary estimates show that the measure would raise $100 billion over 10 years. Another proposal floated by committee members would slap a 5 percent "millionaires' tax" on individuals with very high incomes, yielding about $350 billion over 10 years. Obama's proposal to limit deductions would raise $90 billion to $250 billion, depending on how widely it would be applied.

Baucus is also developing variations of the benefits tax, including a version that would hit only highly paid employees with the richest benefit packages. Key Republicans, including Sen. Charles E. Grassley (Iowa), the ranking Republican on the Finance Committee, have demanded that all revenue increases be related to health care, and they say the benefits tax must meet that requirement while also closing a major tax loophole. But Obama campaigned against the idea, and Democrats remain skeptical that certain groups, such as firefighters and police officers, could be exempted, because they often receive benefits plans that are much more generous than their salaries.

"If it includes middle-class people, which I think it may well, I think there will be a lot of concern about that," Schumer said.

Pelosi flatly ruled out the idea. "We will not be taxing . . . health-care benefits in any legislation that comes from the House," she told reporters yesterday.

Tax issues aside, negotiators said they are close to resolving most major policy questions, including whether to create a government insurance plan to compete in the private marketplace, to ensure greater choice and drive down costs. The House legislation calls for a public plan, as does the Senate health committee bill.

But the more conservative Senate Finance Committee appears to be settling on a membership-based, cooperative model. Some senior Democrats say the finance and health committee bills could be blended to create a national co-op with a fallback option that triggers the formation of a public plan if private insurers do not offer adequate coverage alternatives.

Senate Majority Leader Harry M. Reid (D-Nev.) said he discussed the co-op idea at length with four Finance Committee Republicans during a Wednesday meeting aimed at building consensus for the emerging bill. "We're going to have some type of a public option -- you can call it a co-op, call it whatever you want -- but we're trying to work something out, and we have not drawn any lines in the sand in that regard," he said.

Pelosi said that she expected conflict between the two chambers on the public plan but that it would not prevent reform from becoming law. "The House of Representatives will set the pace for how we go forward and hope that the Senate priorities are ones that we can come to agreement in conference," she said. "And I'm confident that we can."

Staff writer Lori Montgomery contributed to this report.

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