Health Care Reform Likely to Include More Taxes for Many Americans

Photo: Taxes proposed in the House and Senate health care reform measures

As a presidential candidate, Barack Obama had one central message to middle-income Americans: no new taxes. And since taking office, the president has repeatedly pledged not to raise taxes on families making less than $250,000 a year.

But as a massive health care reform bill inches closer to reality, middle-class Americans, as well as high income earners, can expect some sort of increase in what they pay into government coffers, say Republican critics and some fiscal watch dog groups.

The Senate Finance Committee health care reform bill, which could hit the Senate floor as early as this week, would impose new taxes on insurance companies, drugmakers and medical device manufacturers.

It would also impose a 40 percent tax on the portion of insurance premiums exceeding $8,000 a year for individuals and $21,000 a year for family plans. That tax would be imposed on insurance companies, though it would likely be passed on to consumers, including many middle-income families, say experts.

Last week, Senate Majority Leader Harry Reid was considering a proposal to increase the Medicare payroll tax on high-income workers to help offset the costs of providing health insurance to millions of Americans.

But several Democratic senators are urging Reid to propose extending the Medicare payroll tax to income other than wages, such as capital gains, dividends and rental income. Democrats say that could generate revenue from wealthy households who often get a greater share of their income from sources other than wages.

Some Republicans and Wall Street investors say tapping into high-end earners and capital gains will soak the rich and hurt an already ailing economy.

"Could there be a more efficient way to kill our halting recovery from recession than to have Harry Reid plot in secret to raise taxes?" says Donald Luskin, chief investment officer at Trend Macrolytics LLC. "Have we learned no economic lessons from the Depression?"

The recently passed House bill would impose a 5.4 percent income tax on individuals making more than $500,000 and joint filers making more than $1 million.

The top income tax rate is 35 percent. If existing Bush-era tax cuts expire in 2011, as President Obama has called for, the top rate would grow to 39.6 percent. The new health care tax would further increase that to 45 percent. The House bill would also impose a 2.5 percent tax on the sale of medical devices.

Paying a Fair Share

The House bill would raise $460 billion over the next decade from new income taxes that mostly target the wealthy.

"The public pretty much thinks the richer people in America ought to pay their fair share," says House Majority Leader Steny Hoyer told ABC News last week. "They don't think they're paying their fair share."

But Democratic Sen. Ben Nelson of Nebraska says he'll vote to block any health care bill that looks like the bill passed by the House. "The costs are extraordinary associated with it," he told ABC News. "It increases taxes in a way that will not pass in the Senate. I won't vote to move it."

The House GOP bill, which was rejected a week ago, had no new taxes. Republicans would get savings by capping medical liability awards, stepping up efforts to fight Medicare and Medicaid fraud, and setting up an approval process for generic versions of high-tech drugs.

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