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Health bills at odds on funding

Democrats split over a surtax

By David M. Herszenhorn
The New York Times / July 10, 2009
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WASHINGTON - House and Senate Democrats appeared yesterday to be on a collision course over how to pay for a sweeping overhaul of the nation’s healthcare system, with the House planning to propose an income tax increase on the wealthiest Americans, an idea that Senate negotiators have all but dismissed as unworkable.

Paying for the roughly $1 trillion 10-year cost of the healthcare legislation is arguably the biggest hurdle confronting lawmakers and the White House as they pursue President Obama’s top policy goal of extending health coverage to all Americans and curtailing the steep rise in the cost of medical care.

Senate negotiators had been considering a tax on some employer-provided health benefits, but shifted course this week after the Senate majority leader, Harry Reid, and other top Democrats voiced opposition. House Speaker Nancy Pelosi said yesterday that the House bill would not tax those benefits.

Instead, the House Ways and Means Committee was said to be nearing agreement on an income tax surcharge of 2 percent or more on Americans with the highest incomes - those earning more than $250,000. The surtax would rise for those earning $500,000 and rise again for those earning more than $1 million.

At the same time, aides said that the House was moving away from other ideas, including a proposed sales tax on sodas and other sugary drinks and a new payroll tax of 0.3 percent to be paid by employees and employers.

The White House has not expressed a position on the surtax, but lawmakers said they had heard no objections so far.

Obama’s chief of staff, Rahm Emanuel, who visited the Capitol twice this week to discuss healthcare proposals with House Democrats, has said the president would prefer that money to pay for the legislation come from within the healthcare system. But unlike a tax on employer-provided benefits, which Obama opposed during the presidential campaign, a tax on the wealthy would be in keeping with his promise not to raise taxes on Americans earning less than $250,000 a year.

Meanwhile, Senate negotiators went back to the drawing board and were looking at an array of options. They seemed to be narrowing their focus on a plan that would tax only the most generous employer-provided health plans - those worth $25,000 or more a year - as well as a modified limit on tax deductions proposed by Obama.

The president, in his initial budget, had called for capping certain deductions, including those for charitable contributions, at the 28 percent income tax bracket, an idea initially rejected by a number of Democrats in Congress

But some lawmakers who opposed Obama at that point said they were willing to consider a higher limit - at the 35 percent bracket - that could still generate roughly $90 billion in revenue over 10 years to help pay for the healthcare overhaul, presuming the highest tax bracket reverts to 39 percent if the Bush tax cuts are allowed to expire.

The tax on more generous health insurance plans was projected to generate another $90 billion, and would bring Senate negotiators, led by Democrat Max Baucus of Montana, the chairman of the Finance Committee, more than halfway to the $320 billion in revenue that they had expected from a wider tax on employer-provided benefits.

Lawmakers taking part in the Senate negotiations said Republicans and several moderate Democrats would oppose an income tax surcharge on the wealthy.

Senator Charles E. Grassley of Iowa, the senior Republican on the Finance Committee, called the surtax nonnegotiable. And Senator Olympia J. Snowe, a Maine Republican who is also on the Finance Committee, said it was among the less viable options under consideration.

Baucus said lawmakers had redoubled efforts to find savings to help pay for the bill.

“Senators don’t like to raise revenues,’’ Baucus said, using a euphemism for tax increases.

Senator Kent Conrad, a North Dakota Democrat who is a key player in the talks, said lawmakers were taking their time while sifting through a full range of options.

“Time spent on reconnaissance is never wasted,’’ Conrad said.

Senators were also considering a plan to apply the Medicare payroll tax of 1.45 percent to nonwage income like dividends and capital gains.

And in yet another potential obstacle, 40 House Democrats in the fiscally conservative blue-dog coalition voiced opposition to the emerging legislation and apprehension over potential new taxes. House leaders swiftly called a meeting with the blue dogs to begin addressing their concerns.

In addition to the income surtax on the wealthy, House Democrats were considering an array of other ideas. One would bar drug companies from deducting the cost of advertisements as a business expense on their corporate tax returns. Another would end a tax break for healthcare flexible spending accounts.