The Wall Street-Health Care Connection: Fat Cats Want to Tax Your Benefits

When I heard Senate Finance Committee Chairman Max Baucus, D-Mont., floating the idea of a tax on health benefits in order to raise revenue for health-care reform, I was baffled; how could this be?

Barack Obama's victory in the presidential campaign was due, in part, to his promise to never tax health care benefits. And even as tax schemes on benefits for ordinary American workers gain traction in the Senate, many conservative House Democrats -- the so-called Blue Dogs -- balk at a tax increase on the country's wealthiest citizens to help pay for a much-needed health care fix. 

That puts conservative Democrats in line with the editorial board of the Wall Street Journal, which in a May editorial, embraced the tax on benefits for regular people (calling the exclusion of taxes of employer-based health care benefits "a huge money pot"), but just this week railed against the tax on the wealthy proposed in the current House bill.

On July 21, seven members of the Blue Dog Coalition forced House Energy and Commerce Committee Chairman Henry Waxman, D-Calif., to cancel debate and a vote on a health care bill already passed by two other House committees. The Blue Dogs cited their objections to the cost of the program, and Blue Dog spokesman Rep. Mike Ross, D-Ark., questioned the wisdom of taxing the wealthy to pay for it.

A June survey by Lake Research Partners for the Health Care for American Now coalition found that 80 percent of likely voters opposed a tax on health care benefits.  Many health care advocates argue that taxing health care benefits could actually turn the country against the public health insurance option, which a Wall Street Journal poll shows shows that 76 percent of Americans support. If you tell people that to pay for that public option, you have to tax the benefits of those who have private insurance, that support would likely drop off a cliff.

Political concerns aside, there's also the probability of unintended consequences if the health care benefits provided by employers are taxed -- even if, as currently proposed, the tax would only kick in after a certain level of benefits. A report by the Commonwealth Fund shows that working people with employer-provided benefits could see their tax liability increase by 20 to 28 percent if a cap on tax-free health care benefits was imposed.

Yet, despite the burden that would be felt by many regular people resulting from a cap on tax-excluded benefits, some conservative Democrats are upset about a proposed surtax on the wealthy included in the House bill as a revenue-generator for health care.

The legislation proposed by leaders of three House committees would set a 1 percent surtax on couples with more than $350,000 in annual income, with higher rates taking effect for those earning $500,000 and $1 million.

House Ways and Means Committee Chairman Charles Rangel, D-N.Y., said the surtax would raise raise $540 billion over the next decade, according to Bloomberg News. Still, Ross reportedly objects to the measure.

"I don't like the idea of raising taxes in the worst economic crisis since World War II," he told Politico. In response, House Speaker Nancy Pelosi, D-Calif., is reportedly floating the idea of setting the bar higher -- adding the surtax to the incomes of only those who earn more than $1 million per year.

And that's just one way to go. The Center for Tax Justice, a progressive think tank, laid out a variety of options [PDF] for paying for health care reform. One suggestion is a 1.45 percent Medicare tax on the capital gains and other non-wage income of millionaires -- a measure that could raise billions of dollars.

"If the only income Paris Hilton gets is in capital gains, stock dividends, interest and other types of investment income, [then] currently she is completely exempt from the one big tax we have right now that is dedicated to health care," said CTJ's Steve Wamhoff when he released the proposal.