Health bills would raise taxes well before changes roll out

WASHINGTON — Americans could pay billions of dollars more in new taxes for a few years before they're likely to see significant change in the nation's health care system under legislation that Congress is considering.

Some analysts said that's not necessarily bad. Delaying major health care changes until at least 2013, as the pending Senate and House of Representatives bills would do, would give the government sufficient money and time to get things right.

"You want to fully finance these reforms, so there's no reason not to start raising money," said Linda Blumberg, senior fellow at Washington's Urban Institute Health Policy Center, a center-left research group.

Critics counter that there's no guarantee that the money will be enough, and in the meantime, higher taxes could stifle an ailing economy.

"This is a layaway plan," said Sen. Richard Burr, R-N.C., referring to the pending Democratic legislation before the Senate as well as to the arrangement in which retail customers pay small amounts over time for merchandise and receive it only when they've paid in full. "In four years you'll find out exactly how expensive this plan was."

The bill the House passed on Nov. 7 would impose a 5.4 percent surcharge on adjusted gross incomes of more than $500,000 for singles and $1 million for joint filers beginning in 2011.

Congress' nonpartisan Joint Committee on Taxation estimates that tax would raise $30.9 billion that year, $31.7 billion the next year and $45 billion in 2013. The government-run health insurance plan, or public option, and well as the new health insurance exchange, would begin in 2013, and the joint committee estimates a total of $138.9 billion from all taxes would be available by the end of that year.

For the bill the Senate is scheduled to begin considering next week, the joint committee estimates that the government would raise a total of $108.5 billion through 2014, when its public option, insurance exchanges and most other major changes would take effect.

Among the bigger taxes in that legislation are a 40 percent excise tax on insurance policies costing more than $8,500 for singles and $23,000 for families, starting in 2013. In addition, a 0.5 percentage point increase in the Medicare payroll tax would start that year. Single wage earners making more than $200,000 a year and couples earning more than $250,000 annually would see the tax increase to 1.95 percent.

Starting next year, some smaller tax increases also could be imposed, notably a 5 percent tax on elective cosmetic surgery performed after Jan. 1, and a fee on manufacturers and importers of certain medical devices.

Some experts said that collecting funds in advance is not only responsible but also has been done before.

Veteran budget analyst Stan Collender argued "this isn't unlike what happened with Social Security in 1983," when lawmakers increased payroll tax rates over the next seven years with an eye toward keeping the system solvent well into the future.

While most health care revenues wouldn't be targeted specifically for that purpose, the House legislation says that the public plan would be self-sustaining and money collected from employer penalties would be used to help lower and middle income people obtain coverage.

House and Senate Democratic leaders also point to another benefit: The revenue would help fund a series of steps that could take effect in 2010.

The Senate bill, for instance, includes $5 billion for a new program to help uninsured people with pre-existing conditions afford policies. The House version has a similar initiative. Both bills also would boost benefits right away to Medicare prescription drug plan participants. None of those provisions, though, are major pieces of the bills.

Maya MacGuineas, the president of the Committee for a Responsible Federal Budget, a group devoted to fiscal discipline, accepts that revenue needs to be collected slowly. "You can't build a huge program overnight," she said.

At the same time, however, she favors more savings, perhaps different kinds of taxes and more specific ways of cutting spending. She also knows that the current tax proposals are about as bold as Democrats are likely to get.

"Given the political system's aversion to tax increases and spending cuts," she said, "I worry about what the final bill will look like."


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Senate Democratic bill

Social Security 1983 changes

Social Security payroll tax history

Congressional Budget Office analysis of Senate Democrats' health care bill

Text of Senate Democratic health care bill

Congressional Budget Office analysis of House health bill


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