Obama considers taxing middle-class

[CaptainChewbacca]

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Administration open to taxing health benefits

Proposal problematic for Obama as he denounced similar one in campaign

WASHINGTON - The Obama administration is signaling to Congress that the president could support taxing some employee health benefits, as several influential lawmakers and many economists favor, to help pay for overhauling the health care system.

The proposal is politically problematic for President Obama, however, since it is similar to one he denounced in the presidential campaign as “the largest middle-class tax increase in history.” Most Americans with insurance get it from their employers, and taxing workers for the benefit is opposed by union leaders and some businesses.

In television advertisements last fall, Mr. Obama criticized his Republican rival for the presidency, Senator John McCain of Arizona, for proposing to tax all employer-provided health benefits. The benefits have long been tax-free, regardless of how generous they are or how much an employee earns. The advertisements did not point out that Mr. McCain, in exchange, wanted to give all families a tax credit to subsidize the purchase of coverage.

At the time, even some Obama supporters said privately that he might come to regret his position if he won the election; in effect, they said, he was potentially giving up an important option to help finance his ambitious health care agenda to reduce medical costs and to expand coverage to the 46 million uninsured Americans. Now that Mr. Obama has begun the health debate, several advisers say that while he will not propose changing the tax-free status of employee health benefits, neither will he oppose it if Congress does so.

At a recent Congressional hearing, Senator Ron Wyden, an Oregon Democrat whose own health plan would make benefits taxable, asked Peter R. Orszag, the president’s budget director, about the issue. Mr. Orszag replied that it “most firmly should remain on the table.”

Mr. Orszag, an economist who has served as director of the Congressional Budget Office, has written favorably of taxing some employer-provided health benefits and using the revenue savings for other health-related incentives. So has another Obama adviser, Jason Furman, the deputy director of the White House National Economic Council.

They, like other proponents, cite evidence that tax-free benefits encourage what Mr. McCain called “gold-plated” policies, resulting in inefficient and costly demands for health care and pressure on employers to hold down workers’ pay as insurance expenses rise. And, they say, the policy discriminates against those — many of whom are low-income workers — who do not have employer-provided coverage.

When Senator Max Baucus, Democrat of Montana, advocated taxing benefits at a recent hearing of the Finance Committee, which he leads, Treasury Secretary Timothy F. Geithner assured him that the administration was open to all ideas from Congress. Mr. Geithner did, however, allude to the position that Mr. Obama had taken as a candidate.

The administration’s receptivity to the idea is owed partly to the advocacy of Mr. Baucus, whose committee has jurisdiction over tax policy and health programs, and to support from Republicans. There is less enthusiasm among Democrats in the House, though the health debate is at an early stage and no comprehensive plans are on the table.

Also, Mr. Obama’s own idea for raising revenues for health care — limiting the income tax deductions that the most affluent taxpayers claim — has run into opposition not only from Mr. Baucus but also from his counterpart in the House, Representative Charles B. Rangel, Democrat of New York, who is chairman of the Ways and Means Committee.

Mr. Obama’s proposed limit on deductions would raise an estimated $318 billion over 10 years, or half of his proposed “health care reserve fund.” That is a fraction of the revenues that could be raised from taxing employer-provided health benefits.

In the campaign, Mr. McCain estimated that taxing all health benefits would raise $3.6 trillion over a decade — “a multitrillion-dollar tax hike,” one Obama advertisement said.

The Congressional Budget Office says that including health benefits in taxable income could mean $246 billion in additional revenue for a single year. Stopping short of full taxation, as Mr. Baucus and others suggest, would mean less new revenue.

The latest government figures, for 2007, show that 70 percent of the 253 million people with health insurance received at least some of their coverage through employers. Employment-based insurance covers three-fifths of the population under 65.

Those who want to tax benefits in whole or in part make two main arguments. They say the tax exclusion is a generous subsidy that insulates employees from the true costs of health care, leading them to demand more of it and driving up overall costs. Critics also say the policy is unfair because it favors higher-income people. “It’s too regressive,” Mr. Baucus said. “It just skews the system.”

But in a blueprint for health legislation that he issued last November, Mr. Baucus said taking the exclusion on health benefits out of the tax code would go “too far” and “cause widespread disruption in employer-based health benefits.” Mr. Obama has also said he wants to preserve employer-provided coverage. Mr. Baucus, in his paper, cited other options, like taxing benefits above some value, taxing only wealthy employees or both.

However the proposal is devised, advocates will not have an easy time selling it.
Republicans, like Mr. McCain and former President George W. Bush before him, tend to favor taxing the benefits to finance other incentives for people to buy their own insurance. But given Mr. Obama’s use of the issue in his campaign, Republicans are unlikely to support a change unless the president himself proposes it, a senior adviser to Senate Republicans said.

Many Democrats, especially House liberals, are opposed. “It’s a dumb idea,” said Representative Pete Stark of California, chairman of the Ways and Means Subcommittee on Health. “We have to maintain as much as we can of the employer payments.”

Administration officials often say they will not repeat the mistakes of former President Bill Clinton, whose plan for universal health insurance collapsed in 1994. But Frank B. McArdle, a health policy expert at Hewitt Associates, a benefits consulting firm, said, “If President Obama agrees to cut back the tax break for employee health benefits, he will risk repeating one of Mr. Clinton’s errors by disrupting health insurance for people who have it and like it.”

Some big businesses consider nontaxable employment benefits a tool for recruiting and retaining workers. The United States Chamber of Commerce opposes eliminating the exclusion on health benefits, but James P. Gelfand, senior manager of health policy, said the group had not taken a position on limiting it.

Organized labor, a pillar of the Democratic Party base, considers the benefits among the union movement’s historic achievements for the middle class. But a split could be developing between the manufacturing unions, which have negotiated rich benefit packages, and the growing service employees unions, which include many low-wage workers without generous benefits.

So much for not taxing anyone who makes under $250,000 a year. I think its probably a necessary step, but the fact that opposing it was one of the main planks of his platform is likely going to push alot of the Obamites over the edge.

[ray245]

So much for not taxing anyone who makes under $250,000 a year. I think its probably a necessary step, but the fact that opposing it was one of the main planks of his platform is likely going to push alot of the Obamites over the edge.

If the increase in tax is going to help people through health care reforms, or even introduce universal health care in the US, why not?

[Oskuro]

If the increase in tax is going to help people through health care reforms, or even introduce universal health care in the US, why not?

The problem is that people tend to be incredibly short-sighted, and get angry at their problems today no matter what the payoff might be tomorrow. Everyone wants the benefits without the sacrifice, and thus, end up rage-voting the opposing candidate out of spite.

[Jalinth]

The US itself will need a combination of significant spending reductions and tax increases to bring itself out of its structural deficit. I would agree with imposing tax on any benefits not offered to the average employees. I've seen a couple of executive plans from former US relocated clients which were insane - benefits were out of this world especially given the very tight restrictions, co-pays, etc... on regular employees.

[Glocksman]

My employer offers decent health insurance but the starting wage is only $7.75/hr.
The HMO we get costs TJX over $5000/year for single coverage and over $15,000/year for family coverage.

Our share of it is $22/week single coverage and $60/week for family coverage.
If the insurance is taxed as additional income, I can afford to pay it as I make $13/hr and have single coverage.
The problem would be with the poor schlub new hire with a family having to pay taxes on an additional $15k of 'income' out of his $7.75/hr actual wage.

A lot of my opposition to McCain was based on his plan to tax health insurance.
If the Obama administration seeks to tax my health insurance without offering me comparable coverage through a UHC scheme, then they can go straight to hell.

[Sea Skimmer]

I’m not surprised Obama is considering this, given that he also wants to charge veterans for treating war wounds. I guess he realized that he can’t well spend every dollar on earth, print 500 billion more, and then buy a trillion dollars worth of debt from China every single year.

[Master of Ossus]

A lot of my opposition to McCain was based on his plan to tax health insurance.
If the Obama administration seeks to tax my health insurance without offering me comparable coverage through a UHC scheme, then they can go straight to hell.

McCain's plan made perfect sense, and Obama's new plan is substantively identical to what McCain was proposing--it's basically a tax-credit for people who buy healthcare up to a certain level and a tax on people who have healthcare above some (higher or identical) level.