Which tax should rise to pay for health care overhaul?

WASHINGTON — Congressional negotiators are divided over how to raise taxes to pay for overhauling the nation's health care system, as key players disagree over whether to increase income taxes on wealthy people or find alternatives such as taxing insurers that sell high-end policies.

Lawmakers also face another problem: They're confronting the fear that's made it hard to raise taxes for more than 30 years. Republicans and moderate Democrats think that any tax increase is political poison back home.

Republicans are pouncing on Democrats, charging that the party is eager to add a new tax burden to already-strapped constituents in the midst of a recession.

"I think the American people deserve the truth about the Democrats' $1.6 trillion takeover of our health care system: more bureaucracy, more taxes, more mandates and more government," said House of Representatives Republican leader John Boehner of Ohio, a complaint that he and other Republican lawmakers repeat daily.

The current House Democratic plan would raise an estimated $543.9 billion over 10 years by imposing what it calls a "graduated surcharge" on higher-income earners.

The total cost of the party's health care plan is estimated at $1.5 trillion, about $1 trillion more than the tax surcharge would raise. The other $1 trillion is supposed to come from a combination of spending cuts, business taxes and penalties for employers and individuals who don't get coverage.

Under the surcharge plan, beginning in 2011, couples who file jointly with adjusted gross incomes between $350,000 and $500,000 would pay an additional 1 percent in income tax, while those with incomes of $500,000 to $1 million would pay another 1.5 percent.

The surcharge would apply only to incomes above the minimum amounts. Those rates could go up to slightly after two years if health cost savings aren't achieved. Families with incomes of more than $1 million would be hit with a 5.4 percent surcharge.

The most widely heard criticism is that small businesses will be hurt. Surcharge backers cite data from Congress' Joint Committee on Taxation that indicate that 96 percent of small businesses wouldn't be affected.

Still, many Democrats remain nervous.

"Businesses that have revenues of $400,000 or $350,000 don't feel like they're millionaires," said Senate Small Business Committee Chairwoman Mary Landrieu, D-La. "They don't feel rich; they feel like they're just hardworking Americans."

Another problem, said Sen. Kent Conrad, D-N.D., is that selling the surcharge as part of a health care overhaul is tough, because it's hard to explain to constituents how raising general tax rates affects health care.

For all these reasons, said Sen. Olympia Snowe, R-Maine, "the surcharge is not even on the table here," in bipartisan negotiations among members of the tax-writing Senate Finance Committee.

What is on the table there is an excise tax on insurance companies that offer expensive policies. Legislation that the Senate Finance negotiators are considering would cost about $900 billion, and the aim is to have about one-third of it come from taxes.

While details are still being worked out, and therefore precise estimates of potential revenue aren't available, senators are talking about imposing a tax on insurers that offer policies worth at least $25,000, though some discussions have put the figure as low as $16,000.

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