Democrats Agree on Tax Hike to Fund Health Care

By Lori Montgomery
Washington Post Staff Writer
Saturday, July 11, 2009

House Democrats agreed yesterday to raise taxes on the wealthy to pay for a sweeping expansion of the nation's health-care system, proposing a surtax on the highest earners that could send the top federal tax rate toward 45 percent.

Beginning in 2011, the plan would target all income over $350,000 a year for families and $280,000 a year for individuals, Democratic sources said. The surtax would start at 1 percent, rise to around 1.5 percent for families earning more than $500,000, then step up again, to around 3 percent, for families earning more than $1 million, Democrats said.

That would raise about $550 billion over the next decade, Democrats said -- about half the cost of reforms that are expected to cost about $1 trillion. The surtax percentages could rise two years later, they added, if lawmakers think additional cash is needed to cover the cost of health-care reform.

The top federal tax rate currently stands at 35 percent, but Democrats have vowed to raise it to 39.6 percent next year, when cuts enacted during the Bush administration expire. Combined with other federal tax adjustments, the surtax could leave most taxpayers with annual incomes more than $350,000 facing top federal rates of at least 45 percent, said Robert Carroll, a senior fellow at the nonprofit Tax Foundation.

"One has to decide whether the health-care reform package they're talking about is worth imposing such high tax rates on the most productive members of society," Carroll said.

Republicans assailed the idea, saying the new tax would fall heavily on small-business owners, who tend to report business income on their personal tax returns.

"In the middle of a serious recession, with unemployment nearing double digits nationwide, the last thing we need is a tax increase on small businesses, which will cost the American economy even more jobs," said Michael Steel, spokesman for House Minority Leader John A. Boehner (Ohio).

Democrats said their decision was guided by President Obama's pledge to protect middle-class families from higher taxes. Though wealthier families would face larger tax bills, Rep. Allyson Y. Schwartz (D-Pa.) said health reform, "if this works right," should significantly lower their insurance premiums.

Schwartz said that Democrats on the House Ways and Means Committee, who had been haggling for days over how to pay for Obama's signature domestic initiative, are concerned about imposing such high taxes on income. She said Democrats hope eventually to rework the tax code, a task "we left for another day."

The agreement allows House leaders to move forward with plans to unveil health legislation Monday and bring it to a vote before the full body before the August break.

The schedule is less clear in the Senate, where the debate has been bogged down by a dispute over whether to tax for the first time the health benefits that millions of workers receive through employers.

Yesterday, one of the negotiators, Sen. Kent Conrad (D-N.D.), told Bloomberg TV that he does not expect a Senate vote until after the month-long August recess.

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