House Democrats Propose Surtax on Wealth to Fund Health-Care Plan

By Lori Montgomery and Ceci Connolly
Washington Post Staff Writers
Wednesday, July 15, 2009

House Democrats announced a plan yesterday that would force the richest 2 million U.S. taxpayers to shoulder much of the cost of an expansion of the nation's health-care system, by imposing a surtax of as much as 5.4 percent on income above $350,000 a year.

The House proposal aims to extend insurance coverage to 37 million Americans over the next decade, covering more people through Medicaid and providing subsidies to help others meet a new federal mandate to purchase insurance. Democratic aides said the proposal would cost more than $1.2 trillion over the next 10 years, and would ensure that 97 percent of Americans were enrolled in a health plan by 2015.

About half of the cost would be covered by reducing spending on federal health programs, primarily Medicare, which serves the elderly and the disabled. But much of the rest of the money would come from a new tax on families earning more than $350,000 a year and individuals earning more than $280,000. The taxes, which would take effect in 2011, would affect about 2.1 million taxpayers, the nonprofit Tax Policy Center projected.

The surtax would start at 1 percent and rise to 5.4 percent on income exceeding $1 million. Combined with the expiration next year of tax cuts enacted during the Bush administration, the surtax would drive the top federal tax rate to 45 percent, the highest level since lawmakers rewrote the tax code in 1986.

House leaders defended the plan by saying it targets those most able to pay -- the wealthiest 1.2 percent of households -- while honoring President Obama's pledge to protect the middle class from higher taxes.

Obama issued a statement praising the House plan. At a time when health-care costs are "crushing businesses and families and placing an unsustainable burden on governments," he said, "key committees in the House of Representatives have engaged in unprecedented cooperation to produce a health-care proposal that will lower costs, provide better care for patients and ensure fair treatment of consumers by the health-care industry."

But the plan has drawn sharp attacks from Republicans and is already creating friction with Democrats in the Senate.

"Tax is a four-letter word" with voters, said Sen. Ben Nelson (D-Neb.). Even families not ranking in the top 1 percent of earners "hope they're going to be there someday," he said. "So they don't necessarily think it's fair."

Senate negotiators have all but abandoned plans to directly tax the wealthy and are focusing instead on an array of smaller, more narrowly targeted revenue measures that would raise money from drug and insurance companies, as well as individuals and corporations. A tax on employer-provided health benefits remains part of that discussion, but Sen. Kent Conrad (D-N.D.), who is promoting a tax on the most generous 1 percent of private plans, conceded yesterday that such a proposal is "a very tough sell."

House leaders said the surtax on the wealthy in their plan offers their best chance to push a bill through the House by the end of the month, meeting Obama's deadline and building momentum for his top domestic priority.

"That's where the votes are," said Rep. Charles B. Rangel (D-N.Y.), chairman of the House Ways and Means Committee.

Republicans criticized the surtax as a job-killing tax increase that would fall disproportionately on small businesses, whose owners often report earnings on their personal tax returns. "You can't tax the job creators and expect them to create jobs," said House Minority Leader John A. Boehner (Ohio).

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