Obama officials signal willingness to accept idea he has criticized
Sunday, March 15, 2009 3:29 AM
THE NEW YORK TIMES
WASHINGTON -- The Obama administration is signaling to Congress that the president could support taxing some employee health benefits, as several influential lawmakers and many economists favor, to help pay for an overhaul of the health-care system. The proposal is politically problematic for President Barack Obama, however, because it is similar to one he denounced in the presidential campaign as "the largest middle-class tax increase in history." Most Americans with insurance get it from their employers, and taxing workers for the benefits is opposed by union leaders and some businesses.In television advertisements last fall, Obama criticized his Republican rival for the presidency, Sen. John McCain of Arizona, for proposing to tax all employer-provided health benefits. The benefits have long been tax-free, regardless of how generous they are or how much an employee earns. The ads did not note that McCain, in exchange, wanted to give all families a tax credit to subsidize the purchase of coverage.
At the time, even some Obama supporters said privately that he might come to regret his position if he won the election. In effect, they said, he was potentially giving up an important option to help finance his ambitious health-care agenda to reduce medical costs and expand coverage to the 46 million uninsured Americans.
Now that Obama has begun the health debate, several advisers say that although he will not propose changing the tax-free status of employee health benefits, neither will he oppose it if Congress does so.
At a recent congressional hearing, Sen. Ron Wyden, D-Ore., whose own health proposal would make benefits taxable, asked Peter Orszag, Obama's budget director, about the issue. Orszag replied that it "most firmly should remain on the table."
Orszag, an economist who previously was director of the Congressional Budget Office, has written favorably of taxing some employer-provided health benefits and using the revenue for other health-related incentives. So has another Obama adviser, Jason Furman, the deputy director of the White House National Economic Council.
They, like other proponents, cite evidence that tax-free benefits encourage what McCain called "gold-plated" policies, inefficient and costly demands for health care as a result, and pressure on employers to hold down workers' pay as insurance expenses rise. And, they say, the policy discriminates against those -- mostly low-income workers -- who do not have employer-provided coverage.
When Sen. Max Baucus, D-Mont., advocated taxing benefits at a recent hearing of the Senate Finance Committee, which he heads, Timothy Geithner, Obama's treasury secretary, assured him that the administration was open to all ideas from Congress. Geithner did allude, however, to the stand Obama had taken as a candidate.
The administration's receptivity to the idea is partly due to the advocacy of Baucus, whose committee has jurisdiction over tax policy and health programs, and to support from Republicans. There is less enthusiasm among Democrats in the House, although the health debate is at an early stage and no comprehensive plans are on the table.
Also, Obama's own idea for raising revenue for health care -- limiting the income-tax deductions that the most-affluent taxpayers claim -- has run into opposition from Baucus and his counterpart in the House, Rep. Charles Rangel, D-N.Y., who heads the Ways and Means Committee.
Obama's proposed limit on deductions would raise an estimated $318 billion over 10 years, or half of his proposed "health-care reserve fund." That is a fraction of the revenue that could be raised from taxing employer-provided health benefits.
McCain estimated in the campaign that taxing all health benefits would raise $3.6 trillion over a decade -- "a multitrillion-dollar tax hike," one Obama advertisement said.
The Congressional Budget Office says that including health benefits in taxable income could mean $246 billion in additional revenue for a single year. Stopping short of full taxation, as Baucus and others suggest, would of course mean less new revenue.
The latest government figures, for 2007, show that 70 percent of the 253 million people with health insurance -- 177 million people -- got at least some of their coverage through employers. Employment-based insurance covers three-fifths of the population younger than 65.
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