House v. Senate: Who Should We Tax for Health Care?

« Health Care Reform: What Happens to Multiemployer Plans? | Main | Can We Kill Unemployment With 1000 Paper Cuts? »

Nov 19 2009, 4:20 pm by Derek Thompson

House v. Senate: Who Should We Tax for Health Care?

I'm interested in how the Senate health care bill raises taxes to pay for health care differently from the House version. The ever-useful Howard Gleckman at TaxVox has a good breakdown:

Reid 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).

When we see the House/Senate blend in a few weeks, we're going to get a blend of revenue raisers. I'm with Gleckman here in preferring the Senate's approach. It's not merely that Reid expands the burden of paying for reform beyond the $500K crowd, and I feel uncomfortable merely soaking the rich to pay for our reforms. It's also that his main tax is a policy. The excise tax, as I've written, is a clever way to encourage employers to switch to less expensive plans and put the savings into their workers' compensation as taxable income. As for the other taxes, I suppose the Medicare payroll tax increase for the rich is a step toward the inevitable compromise to include some kind of surtax in the final bill. Also, I like me some sin taxes, but a cosmetic surgery tax? Meh.

Comments (4)

Paul in Athens November 19, 2009 4:54 PM

Wages are paid to the individual worker without regard to their marital status. Current Social Security and Medicare taxes withheld (and matched by the employer) are strictly a math function of wages paid times the rate. For Social Security taxes there is a ceiling, and wages above that ceiling are not taxed.

How does the employer know that an employee is married. How do they know this without violating some other privacy laws?

The tax on medical devices, as I read it, do not apply to "retail" sales, so who pays this anyway, and how does this tax *not* increase costs of services provided to patients if it does apply to sales to hospitals and doctors offices?

And instead of increasing the floor on deductible medical, in which case the only people that can take the deduction would be wealthy low-income folks with huge medical expenses. Either eliminate it entirely, or place a cap on the dollar amount that can be claimed. You can spend all you want, but you can only deduct X as a strict dollar amount cap per person on the return.

The "fee" (would that be considered a tax?) on "branded" drugs just jacks up the cost of drugs. Or did I miss that somehow. Named drugs are going to be out there, and the drug manufacturers will change their formula, rename it, and swear it's "better" than the old drug that's now a generic or whatever. So money comes in ($100 Billion), but drug costs go up ($100 Billion). I guess this makes sense to someone. Not to me, but I'm not a politician.

Oh well, since we'll all be making $100K soon (the minimum wage rate as the dollar falls), and paying $18 for a loaf of bread on the day-old sale rack, what's a few hundred billion among friends.

Nino November 19, 2009 5:09 PM

Paul, just a quick response. An employer knows someone is married by the tax form one fills out when gaining employment. We have a pretty extensive tax system, I don't think something that simple would be overlooked.

mgoodfel November 19, 2009 6:06 PM

If I had to bet, I'd bet the tax on expensive health plans will be watered down. It affects too many union plans. I don't even know if they are applying it to the health plans of government employees, which can be pretty generous. Anyone know?

The tax on millionaires might be easier to pass, except that it affects a lot of campaign donors (and some Senators?)

Mekhong Kurt November 20, 2009 9:34 AM

mgoodfel -- first, I don't know if either bill includes any taxes on insurance provided government employees. But if that's included, I have to ask "Why?"

Let me explain. Take income taxes as an example, since they're something we all know all too well. I have never understood the logic of paying our military, say, and then tax them. Why have the expense of including money in their pay that the IRS is just going to take back at the end of the day -- involving two costly bureaucracies, the DOD and the IRS. The same applies to all federal employees.

Further, in states that have a state income tax, I would ask the same question regarding state employees. Ditto for public employees in any county or city that has yet another income tax.

I guess quite a few people would holler, "Unfair!" and demand either those folks get taxed or they get their pay cut. At the federal level, I could see that for Representatives and Senators, the President and Vice-President, the Supreme Court, and perhaps Secretaries -- but not for the Capitol Police, any members of the military, White House gardeners and maids, etc. etc. etc. Not the little people, in other words, and nobody in the military at all who's in uniform (SecDef would be okay, though, and the Secretaries of the various branches).

Not being argumentative; just another guy's view.