Gannett News Service
July 21, 2009 Tuesday
Opposition builds to health care tax plan
By BRIAN TUMULTY
Gannett Washington Bureau
WASHINGTON - A growing number of House Democrats, including some members of the New York delegation, oppose imposing an income tax surcharge to pay for health care reform legislation.
The plan, which would impose a surtax on individuals making more than $280,000 and couples making more than $400,000, is part of a bill the House could vote on by the end of the month.
"The bill needs to be more focused on taking costs out of the system," said Rep. Scott Murphy of Glens Falls. "I don't think this is the right way to pay for health care reform."
Rep. Nita Lowey, D-Harrison, also isn't ready to back the surcharge, according to her spokesman, Matthew Dennis.
"Before she supports another tax on her already heavily taxed constituents, she wants to be sure we maximize savings by squeezing insurers as much as possible," Dennis said in an e-mail. "That must be determined before we put more burdens on American families. The process is far from over, though, and she will work to reduce the number of people who could be affected by the surcharge and the amount they would pay."
Rep. John Hall, D-Dover, also has reservations about the tax component.
"This is a bill that is still in a state of flux," Hall said, noting that he's working to make sure small businesses are not harmed.
The 52-member Blue Dog Coalition, a group of fiscally conservative group House Democrats, also opposes the tax proposal and wants more cost-cutting. Three Blue Dogs who serve on the tax-writing Ways and Means Committee voted against the surcharge and related provisions that the committee approved Friday.
The complex legislation needs approval by three committees before a floor vote. Two gave their OK on Friday in split votes.
The Blue Dog Democrats have enough members to block passage, given that House Republicans, including Chris Lee of the Buffalo area, solidly oppose the legislation as currently written.
"It's not just high-income earners; it's going after small business," Lee, a former business owner, said.
He was referring to the fact that about three-quarters of small businesses aren't incorporated and some of those business owners would have to pay the tax surcharge.
Lee advocates an approach that would reduce health care costs first.
In fact, more cost-cutting appears to be required because the Congressional Budget Office announced Thursday that the current legislation would increase health care costs, rather that reduce them.
Liberal Democrats such as Rep. Eliot Engel of the Bronx, Maurice Hinchey of Hurley and Louise Slaughter of Fairport support the move to a top marginal income tax rate of 45 percent.
Hinchey characterized the proposal as "a tiny little surtax on the wealthy," adding, "I think whatever you want to do to help people of this country, you have to pay for it."
Slaughter said, "I just think it's a matter of fairness that they should pay their fair share."
Engel likewise describes the proposed tax as "the most equitable way" to produce the revenue needed. "I think the income threshold is high enough so it really doesn't affect working people, the middle class," he said.
Under the House plan, the new surtax would be 1 percentage point on single wage-earners with adjusted gross incomes between $280,000 to $400,000 and couples earning between $350,000 and $500,000. It would escalate to 1.5 percent for singles making $400,000 to $800,000 and couples with incomes between $500,000 and $1 million. Those earning more would pay a 5.4 percent surtax.
Citizens for Tax Justice, a liberal-leaning advocacy group, estimates 1.8 percent of New Yorkers would face the proposed surtax.
Republicans have soundly criticized the proposal, making it unlikely to be considered in the Senate. Democrats there are continuing closed-door talks with Republicans on a bipartisan approach.
But conservative tax groups such as the Tax Foundation have noted that Democrats already plan to allow the Bush administration's tax cuts for the wealthy expire in 2011, pushing the top marginal income tax rate back up to the 39.6 percent level it was during the Clinton administration.
A surtax of 5.4 percent would push the top marginal federal tax rate to 45 percent.
New York already has a high state income tax and imposes local income taxes in Yonkers and New York City.
The combination of local, state and federal incomes taxes would mean some New Yorkers would face a 56.9 percent rate, according to the Tax Foundation.
New York Sen. Chuck Schumer is one of four Democrats on the Senate Finance Committee negotiating with Republicans on a plan to impose new fees or taxes on insurance companies to help pay for health care reform.
Negotiators are trying to craft a proposal that would keep insurers from passing along the increased costs to consumers.
"I don't have any problem with a surtax on very wealthy people, but I don't know it has the kind of votes in the Senate to do a bipartisan bill," Schumer said.
According to Schumer, a major impetus for targeting insurers is that other health care entities, such as hospitals and pharmaceutical companies, have agreed to cost reductions, while insurers have not. The profits of the nation's 10 largest health insurers have risen from $2.4 billion to $12.4 billion since 2000.
"Their profitability is enough to make oil executives blush," Schumer said.
A spokesman for America's Health Insurance Plans said the industry has embraced a number of proposed reforms.
"We have outlined specific and far-reaching initiatives to help bend the health care cost curve by simplifying policies and procedures so that physicians and hospitals can focus on patient care," said spokesman Robert Zirkelbach.
All told, the health care industry has agreed to $680 billion in cost reductions, but there is still a $320 billion gap in the estimated $1 trillion, 10-year cost of reforms that will need to be covered by revenue raisers.
The tax on health insurers could produce $70 billion to $130 billion in revenue, according to Schumer.
The remaining $190 billion to $250 billion in needed revenue could come from a variety of sources that are on the table, Senate Democrats said.
Among the many options under discussion in the Senate are a phase-out of some income tax deductions that will expire in 2011, a tax on drug companies and an expansion of the Medicare payroll tax to unearned income.
Sen. Kirsten Gillibrand, the state's junior senator, expects the Senate bill to differ from the House version. She is withholding judgment until a bill emerges from negotiations, according to spokeswoman Bethany Lesser.
"It would not be wise to prejudge any proposal at this point before we've seen all the details," Lesser said in an e-mail.
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Contact Brian Tumulty at btumulty@gannett.com