Tax Hikes on the Wealthy May Bankroll Health Care Reform

Sen. Harry Reid (D-Nev.) has asked the Congressional Budget Office to analyze a proposal to increase the Medicare payroll tax for people making more than $250,000 per year to help pay for health care reform, according to a report by the Associated Press. The news service attributes the information to numerous anonymous Democratic sources, but does not specify how much above the current 1.45 percent payroll tax Reid has recommended.

Reid's spokesman, Jim Manley, told Politics Daily Thursday that Reid would have no comment on the AP report, but did say, "We are waiting to hear from the Congressional Budget Office about several different options."

Reid sent his draft proposal of health care reform to the CBO for a cost assessment two weeks ago, after combining two Senate committee-passed versions of the bill into one. The Senate Finance Committee had the responsibility of finding ways to pay for expanding health care coverage, but did not approve raising income taxes or payroll taxes.

Instead, the committee voted to raise revenue with fees on drug companies and medical device makers, as well as with a 38 percent "excise tax" on high-end health insurance plans. The excise tax concept came under ferocious attack by labor unions, whose members enjoy some of the most generous health benefits.

"It's bad policy, it's bad politics, and it's totally unacceptable to put the cost of health care reform on the backs of working families," AFL-CIO chief Richard Trumka told reporters last month. It was not clear Thursday whether the possible payroll tax increase would supplement or replace the excise tax idea.

Senate approval of a tax increase on the wealthy would continue the momentum the idea already has in Democratic circles. The health care bill approved by the House Saturday night includes a significant income tax increase -- 5.4 percent -- for individuals making more than $500,000 and couples making more than $1 million per year.

During the 2008 presidential campaign, President Obama suggested raising taxes on income over $200,000 to help pay to expand access to health insurance in America. Obama promised not to raise taxes on anyone making less than $200,000.

The Senate could begin consideration of a health care bill as early as next Monday, although most senators have not yet seen the bill the Reid sent to the CBO.