Senators weigh tax hikes to pay for health care

May 12, 2009 11:15:03 AM PDT
The Senate's top tax writer said Tuesday he is considering limits on the tax-free status of job-based health insurance to help pay for President Barack Obama's plan to cover all Americans. Finance Committee Chairman Max Baucus, D-Mont., described his idea as senators began to grapple with how to pay for the costs of the plan, which independent experts put at about $1.5 trillion over 10 years. There are no easy options.

The final package is likely to include a mix of tax increases and spending cuts. Among the possibilities: tax hikes on alcoholic beverages and sugary soft drinks, and restrictions on other health care related tax breaks, such as flexible spending accounts.

But some taxes don't seem to be on the table, such as a federal sales levy to pay for health care, or a new payroll tax.

On the controversial question of taxing health benefits, Baucus is staking out a position that could put him at odds with Obama.

The president adamantly opposed such taxes during the campaign, arguing they would undermine job-based coverage. Obama's aides now say he's open to considering suggestions from Congress, even if he criticized Republican presidential rival John McCain for proposing a sweeping version of it.

Baucus said he wants to readjust the tax break, not abolish it.

"We are not going to repeal it," he said.

But Baucus suggested that the benefit could be limited by taxing health care provided to high-income individuals or by taxing the value of extravagant health insurance plans. Baucus did not specify at what income level the tax would kick in.

Employer-provided health insurance is considered part of workers' compensation, but unlike wages, it is not taxed. The foregone revenue to the federal government amounts to about $250 billion a year.

Proponents of repealing the benefit say it encourages lavish health insurance plans that only add to waste in the health care system. And they argue that the benefit is unfair, since self-employed people don't get as big a tax break for health care.

Many experts say that Congress won't be able to come up with the kind of money needed to provide coverage for all unless limitations on the health care tax break are part of the mix.


Associated Press Writer Erica Werner contributed to this report.

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