Senate Majority Leader Harry Reid (D-Nev.) has pulled together a health bill that relies on three major revenue sources (and many smaller ones) to help support the cost of new insurance subsidies for those with low- and moderate-incomes.
Redi proposes $370 billion in new tax revenues over the next decade. $150 billion would come from a 40 percent excise tax on high-cost employer-sponsored insurance. Fees on makers of branded drugs and medical devices and on insurance companies would raise another $100 billion. Boosting the Medicare payroll tax by 0.5 percent on wages in excess of $200,000 ($250,000 for couples) would bring in another $55 billion. Among the cats and dogs: $15 billion from an increase in the floor on deductible medical expenses from 7.5 percent to 10 percent, and $6 billion from an excise tax on cosmetic surgery (the tummy tuck tax).
Reid picked very different revenue sources than the House. It would raise far more in taxes—about $540 billion through 2019. And 85 percent--$460 billion-- would come from a 5.4 percent surtax on incomes in excess of $500,000 ($1 million for couples).
A few thoughts on these proposals:
As I have written in the past, the House bill troubles me because it requires a few hundred thousand taxpayers--fewer than 1 percent--to pay for the bulk of health reform. That is bad economics and even worse governance. The Senate bill divides the burden somewhat more. While insurers would pay the excise tax on expensive employer-sponsored insurance, they would pass on much of the cost to workers. And the JCT estimates that middle-class employees would bear a substantial share (at least in an earlier version of the bill). Similarly, those taxes on drug and device makers as well as insurers will also be passed on, at least in part, to their customers, who are us.
The higher Medicare rate in the Senate bill is merely another way to tax the wealthy. I’m a bit surprised that senators who so strongly opposed the income surtax are so quiet about the Medicare surtax. Thus, we’ve learned that the Senate is OK with a $55 billion tax hike on the wealthy but not with a $460 billion increase. It doesn’t take a rocket scientist to figure that the tab for the top brackets will come in somewhere between those two numbers when the final law is written. The neighborhood of $200 billion sounds about right.
The Senate would raise the floor on deductible medical expenses to 10 percent, except for seniors who’d get to keep the 7.5 percent floor. Anybody want to explain why catastrophic health costs are harder on a retiree than on a working family?
Finding the revenue to pay for health reform was always going to be a huge challenge. It still is, but we are beginning to see the outlines of a deal—a little income tax surcharge here, a dollop of insurance premium excise tax there, and more than a few cats and dogs. It may not really pay for the cost of insurance reform over next decade, but it will pass muster with the scorekeepers. And in Washington these days, that’s all that matters.
