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More Tax Proposals to Pay for Health Care Reform

November 13, 2009

Washington has continued to be abuzz with talk of new ways to pay for health care reform, despite the passage about a week ago of the House version of the bill.

The Senate has yet to vote on its own version of the legislation, which was only recently formed from the spare parts of the Senate HELP Committee and Senate Finance Committee versions. Senate Majority Leader Harry Reid, D-Nev., has good reason to be unsure he has enough votes to overcome the procedural hurdles and bring the bill to the floor, especially with the controversy brewing over the Stupak anti-abortion amendment that was inserted into the House version last weekend. In the meantime, as the status of the bill remains in flux, various sides are weighing in with ideas of how to pay for it, even though the Finance Committee already had its say on the matter.

Among the ideas is raising the Medicare payroll tax on high-income employees, according to The New York Times. Reid is reportedly considering increasing the tax for people who earn over $250,000 a year, as Obama had said during the campaign that he would not raise taxes on people making over that amount. Increasing the Medicare payroll tax by half a percentage point to 1.95 percent for those in this income range could raise up to $50 billion over a 10-year period.

Another idea that seems almost inevitable now is a hike in capital gains taxes. That’s because the Bush tax cuts are set to expire on Jan. 1, 2011 and Congress is not likely to renew them, at least as far as capital gains are concerned. The expiration of those tax cuts would raise the capital gains rate from 15 to 20 percent. Combine that with the 5.4 percent surtax on high-income taxpayers contained in the House version of the health care reform bill, which applies to individuals who earn over $500,000 in adjusted gross income and joint filers who make over $1 million annually, and the capital gains rate would effectively reach 25.4 percent. That would represent a 69 percent hike compared to the 15 percent rate on capital gains now, according to The Wall Street Journal.

It isn’t clear, though, that the Senate will adopt the surtax. The Senate Finance Committee preferred a tax on so-called “Cadillac” or “gold-plated” health insurance plans instead. But some senators are seeking to trim back the Cadillac health care tax as they come under pressure from labor unions worried the extra costs could fall on their members. Some unions had negotiated for more generous health insurance policies rather than bigger salary increases in their contracts over the years.

As it stands, the Senate may not manage to bring the bill to the floor by the end of this year, unless Reid can be sure that it won’t go down swiftly to defeat.

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