Obama jobs plan: Raise taxes on health care

By MATT DOBIAS | 9/15/11 Politico.com

The White House wants another shot at requiring some Americans to pay more for their employer-backed health coverage, despite a previously tepid response from the very same lawmakers needed to advance the proposal.

Nearly imperceptible to all but the most trained tax policy eyes, President Barack Obama’s blueprint to boost employment hinges partly on a provision that makes health plans taxable for individuals who make more than $200,000 and couples making more than $250,000.

“If your incomes are above those levels, and you benefit from employer-sponsored health insurance, you’re going to have to pay a modest amount of tax on the value of the health insurance,” explains Paul Van de Water, a senior fellow at the Center on Budget and Policy Priorities.

The tax provision was included as a way to defray the nearly $447 billion price tag for Obama’s template to get Americans back to work. Under the White House’s calculations, the provision means that higher earners would pay about 7 percent more on the value of their health coverage. Put another way, it caps what the wealthy can deduct for the cost of their coverage, lowering the amount to 28 cents.

“This proposal is part of a balanced deficit reduction plan that includes closing corporate tax loopholes and asking the wealthiest Americans to pay their fair share,” a senior White House official said, adding that shifting the deduction from 35 percent to 28 percent makes it “more in line with what middle class families receive today.”

The exclusion is a familiar target for the administration officials. Some variation of the proposal has been included in every budget Obama has submitted.

Indeed, a similar measure had been eyed during the early days of the health reform debate on Capitol Hill as a way to help pay for the mammoth package. Ultimately, lawmakers proved cool to the idea, and White House negotiators settled for a tax on more generous — and costly — health plans that doesn’t start until 2018.

“It was one of the options being discussed,” Van de Water said. “There was a lot of discussion of including some version of health insurance benefits as one of the pay-fors.”

Now, the tax exclusion idea is part of a jobs package — Obama’s proposal for dealing with the top priority for lawmakers from both parties. Whether that will be enough to overcome a deep reluctance to approve new tax revenues is still unclear, but members from both parties have a powerful incentive to find some common ground.

“It’s so clear to me that we want to do anything we can to create jobs,” Sen. Sherrod Brown (D-Ohio) said. “If that means compromising on some pay-fors and making it work, we’ll compromise to get this up and running.” Even so, it may not be enough to garner GOP support.

Grace-Marie Turner, president of the Galen Institute, a think-tank that promotes open market solutions for health care, said the proposal misses the mark.

“I can’t imagine any Republicans would support it,” she said. “It’s not the right way to fix the flawed tax treatment of health insurance.”

Donald Marron, director of the Tax Policy Center, a jointly-run program between the Urban Institute and the Brookings Institution, said the exclusion makes for an obvious target.

At $200 billion per year, the tax subsidy is by far the largest tax preference, he said. “It clearly increases the number of folks who have health insurance,” Marron added. “But in a bang-for-buck way, it’s not an efficient way to encourage benefits. It goes to high-income people who, frankly, would have coverage anyway.”

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