During the presidential campaign, Barack Obama said rival John McCain’s plan for taxing employee health benefits would represent “the largest middle-class tax increase in history.”
But now the Obama administration is signaling to Congress that he could support such a plan to help pay for overhauling the healthcare system, The New York Times reports.
Since companies began offering group health insurance on a large scale during World War II, the value of that benefit has never been counted as income, reducing workers' taxable earnings by an average of $9,000 a year for family coverage. The average family healthcare plan today costs $12,000, a burden shared by many employers.
Though there are several plans that have been offered by lawmakers who have toyed with the idea of taxing benefits, the Obama administration is unclear about what form of taxation they would support. If benefits were taxed at prevailing income rates, a family making between $30,000 and $49,000 could be looking at a tax increase of $2,500, based on the average savings per tax return calculated by the Congressional Joint Committee on Taxation. A family or individual earning $75,000 could be looking at an increased tax bill of at least $3,000 while those making above $100,000 could pay about $4,500 if benefits were taxed at the prevailing rate.
Thus far, the Obama adminstration has been quite coy about how far they want to take the idea of taxing benefits. On "Fox News Sunday With Chris Wallace," Austan Goolsbee, a key member of the White House Council of Economic Advisers, wouldn't dismiss the idea.
"This appears to be coming from — the administration and representatives of the administration went to Congress and said, 'We are open to all ideas to talk about health reform.' He (Obama) put forward a vision. There are some people in Congress who are pushing this, but that is not the president's idea," said Goolsbee.
"The president has laid out a series of clear principles on the health plan that we will do whatever it takes to get affordable quality coverage to all Americans," he added. "And he's outlined a more than $600 billion cost-saving program that will get costs down so that we can afford to reform the health system. And if the — if these ideas can fit in with those principles, then we'll consider them. And if we go through and they don't, then he won't consider them."
It's unclear how much support the idea would have in Congress. Republicans are likely to be against any new tax during the worst economic downturn since the Great Depression, while Democrats would be slow to embrace a tax on health care when they're trying to make it more affordable for families, not less.
U.S. Rep. John Lewis, D-Ga., said, “It would be something we would have to take a very hard look at. I would not support it outright.” Republican Rep. Phil Gingrey, also from Georgia and an obstetrician, said he would consider taxing high-value health care benefits. “During the campaign, [Obama] was highly critical of McCain. Now all of sudden he’s realizing maybe old McCain wasn’t so crazy after all.”
In TV ads last fall, Obama criticized McCain for proposing a tax on all employer-provided health benefits in exchange for giving families a tax credit to subsidize the purchase of healthcare coverage.
Now several Obama aides say that while the president won’t propose a tax on benefits, he won’t oppose the measure if Congress puts it forward.
Sen. Ron Wyden, an Oregon Democrat who favors making benefits taxable, asked Peter Orszag, Obama’s budget director, about the issue at a recent Congressional hearing. Orszag said it “most firmly should remain on the table,” according to The Times.
And when Sen. Max Baucus, a Montana Democrat who heads the Finance Committee, spoke in favor of taxing benefits, Treasure Secretary Timothy Geithner said the administration was open to all ideas from Congress.
The latest government figures disclose that 70 percent of the 253 million Americans with health insurance receive at least some of it through their employers. And the Congressional Budget Office has estimated that including health benefits in taxable income could bring in more than $245 billion in additional revenue a year.
But Alan Reuther, legislative director of the United Automobile Workers, told The Times that the move “would represent a tax increase on working families.”
In another possible initiative to aid his healthcare reform goals, Obama last week told business leaders he’d consider cutting the 35 percent corporate tax rate if they cooperate with his overall agenda, The Wall Street Journal reported.
Obama met with 65 CEOs from the Business Roundtable, a chief executives organization, and stressed that he wants the business community’s cooperation in promoting his agenda of overhauling healthcare and the energy sector and expanding the federal role in education.
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