A Tale of Two Taxes

02 Feb

Some of the biggest differences between the House and Senate health care bills aren’t really up for debate. Thanks to the filibuster and the stubborn demands of the otherwise completely irrelevant Sen. Joe Lieberman, for example, there will be no public option in the final bill. On the other hand, figuring out how to pay for reform is where a lot of the action is, and the House and Senate differ in their approach to raising revenue. The process of negotiating a compromise bill requires finding the money to pay for it. It’s almost like the budget is a toll booth and Congress is getting out of the care and picking up all the money on the ground.

On the House side, the money would be raised by increasing taxes on the very wealthy. On the Senate side, the money would be raised by taxing the high-end “Cadillac” health plans and increasing the Medicare payroll tax for the very wealthy. As Jonathan Cohn writes, the Senate’s commitment seems to be ensuring “that money for health care come[s] entirely from ‘within’ the health care economy.” There’s one principle that seems clear: New taxes should only apply to the wealthy. Of course, there’s a problem in the case of lower-middle class union workers whose unions have negotiated excellent health care benefits for them. Why? Because these people aren’t wealthy, but they’d see their plans considered “Cadillac” plans and subsequently taxed. Clearly, the House doesn’t like this.

But if you get rid of one source of funding, you have to find another one to take it’s place. That’s where the newest idea comes in: There’s now talk not only of increasing the Medicare payroll tax, but of expanding the tax so that it also applies to investment income–again only for the very wealthy. Martin Vaughan and Laura Meckler outline the proposal in an article in The Wall Street Journal. An important thing to note is that this tax would not apply to investment income from pensions and retirment accounts (like your 401(K)). Estimates are that this would raise about $11 billion a year.

I think it’s a great idea, and it proves that, while there may not be any hope of bipartisanship in health care reform, members of Congress still possess the ability to negotiate compromises that make sense–even if those compromises are between the two chambers, but within the one party. I choose to see some hope in that.

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Posted by on February 2, 2010 in Uncategorized


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