Dems weigh payroll tax to pay for health plan 

As the House and Senate negotiate a final health care bill, they are setting their sites on raising the Medicare payroll tax on high-income earners as a way to bridge a disagreement over who should pay for the trillion-dollar legislation.

Critics say adding a Medicare payroll tax would hurt the economy and that the proposal shows the desperation of Democratic lawmakers who want to quickly strike a health care deal. But proponents say it would shield the middle class from a tax increase.

The House Democratic Caucus on Thursday held an intense 90-minute telephone conference in which members denounced a Senate plan to impose a hefty excise tax on expensive insurance plans. The Senate provision, which would affect plans held by many union workers, would impose a 40 percent tax on health care policies valued at $8,500 for individuals and $23,000 for families.

"Members said it is a concern in their district," said a Democratic aide who was on the call. "One member said the health care premiums in their district are really high and it impacts their constituents. That is a concern the speaker wants to look into, to make sure people aren't hit by that."

The excise tax would raise $149 billion over 10 years, so if Democrats want to eliminate it or reduce it, they will have to raise money somewhere else.

Though House Democrats had wanted to scuttle the excise tax and raise money via an income tax on millionaires, they may accept a compromise of excluding more people from the excise tax and making up for that lost revenue with a Medicare payroll tax.

"Its certainly something we should explore," said Rep. Frank Pallone, D-N.J., a key negotiator who chairs the Energy and Commerce Subcommittee on Health. "I prefer the millionaires' surcharge but I suppose the Medicare payroll could be adjusted, too."

The Senate bill already includes a provision to impose a .9 percent payroll tax increase on individuals earning more than $200,000 and couples earning more than $250,000. But that would only raise $87 billion over 10 years.

Tax policy analysts say the Medicare payroll tax will hurt workers at all income levels, not just millionaires, by limiting investments and killing jobs.

"When you do this, it's not a free lunch," said Curtis Dubay, senior tax policy analyst at the Heritage Foundation, a conservative think tank. "It is at a huge cost to the economy and it doesn't just hit the rich. It trickles down to the rest of us."

Dubay said the move is also dangerous because it would divert money traditionally designated for Medicare to fund a new entitlement program.

"This is an enormous break with precedent and policy that has been in place for 40 or 50 years now," Dubay said. "It is a slippery slope. What else can you raise the payroll tax to pay for?"

sferrechio@washingtonexaminer.com

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