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Obama Ready to Tax Benefits

Responding to demands that he further explain where the money would come from to pay for his dramatic health-care overhaul, President Obama is said to be on the brink of endorsing the limited taxation of employer-sponsored health benefits -- benefits that have historically been tax free, no matter how generous and regardless of how much employees earns.

Even though Obama's plan would only tax benefits over a certain amount, it would still rate as his biggest reversal yet on domestic policy. During his election campaign, Obama strongly criticized his Republican rival John McCain for his proposal to tax all such benefits.

For comparison purposes, however, what Obama in one campaign commercial dubbed the "McCain Tax" and the "largest middle-class tax hike ever," would have raised $3.6 trillion in taxes over 10 years from people with bare-bones health plans and "Cadillac" plans alike. Congressional estimates suggest that taxing workers for the value of benefits above the current cost of the standard health plan for federal employees -- the plan Obama seems about to support -- would, by contrast, raise $418 billion over 10 years. Applying that cap only to individuals making over $100,000 or couples making over $200,000 would generate $162 billion.

All this is according to CQ. Adriel Bettelheim writes for CQ this morning:

Though the new tax would capture a significant number of middle-class workers, the White House is ready to endorse it, if the majority of lawmakers on the tax-writing committees sign on. And administration officials already are preparing a justification, by arguing that fixing the U.S. health care system is too important to founder on questions about how to finance it, according to officials familiar with the administration’s thinking.

Bettelheim points out that the move "risks triggering a huge political battle with labor unions concerned about losing their bargaining clout" as well as legislators "wary of antagonizing economically stressed middle-class voters." But, she writes:

Obama himself will begin make the case at a series of campaign-style appearances across the country, beginning with a town hall meeting on Thursday in Green Bay, Wis., and in private meetings with lawmakers....

White House officials will repeatedly make the case that the overall savings working Americans obtain from a revamped health system will trump concerns about paying taxes on health benefits.

This argument already has been dubbed “It’s all about the net,” meaning the net annual cost of health coverage, and reflects the administration’s bottom-line rationale for any substantial health care overhaul.

Richard Rubin wrote for CQ Sunday night about the early estimates from the Joint Committee on Taxation. The $418.5 billion in question, he wrote is

not enough to pay the full cost of expanding health insurance to all Americans, but it would make a significant dent in the estimated $1 trillion price....

The estimate assumes that the exclusion cap will be set at the cost of the “standard option” health plan for federal employees and then indexed annually for per-capita medical cost inflation.

Obama told Democratic senators last week that he’d consider taxing such benefits. Ceci Connolly wrote in The Washington Post at the time:

Tax treatment of employer-sponsored health care cuts across party lines: Prominent Republicans such as Sen. Judd Gregg (N.H.) support imposing a tax on certain health plans, while Democrats such as Sen. Sherrod Brown (Ohio) say that a tax would unfairly hurt middle-class workers with good benefits.

Health analysts from across the political spectrum have pressed for changing the tax treatment, arguing in part that the exclusion provides the greatest tax relief to high-salaried workers with generous insurance plans.

But, she wrote,

the issue represents treacherous politics for Obama, given his attacks on Sen. John McCain (R-Ariz.), who advocated a similar approach during the campaign.

"For the first time in American history, he wants to tax your health benefits," Obama said in September. "Apparently, Senator McCain doesn't think it's enough that your health premiums have doubled. He thinks you should have to pay taxes on them, too."

Strongly desiring to declare a health-care victory this year, Obama is now taking a more nuanced approach, aides said. "His style of leadership is to say, let's not get bogged down; let's keep moving forward," said one senior adviser who was in yesterday's meeting. "He's not ruling anybody's ideas out."

Jackie Calmes and Robert Pear wrote in the New York Times last March about his attacks on McCain:

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 to expand coverage to the 46 million uninsured Americans.

Meanwhile, Congress is taking a historic leap into action. Noam N. Levey writes in the Los Angeles Times:

Spurred on by President Obama and an array of businesses, medical providers and consumers clamoring for change, congressional Democrats have begun to lay out specific plans for overhauling the nation's healthcare system -- proposing changes that would affect almost every American, old or young, sick or well, rich, poor or middle-class.

Despite a looming brawl over key details, the Democratic majority is expected to pass a bill that will make ordinary Americans the ultimate stakeholders who must live with the system, adjust to changes and -- one way or another -- absorb the costs....

Though they differ on important details, the Democrats' plans all focus on three broad goals, each of which has contributed to stalemate in the past:

* Improving the quality of care for everyone by encouraging doctors, hospitals and others to adopt the best, most effective courses of treatment....

* Curbing the explosive growth in costs by prodding the medical system to make more cost-effective decisions and to increase efficiency by moving to computerized medical records....

* Making health insurance readily available to the 46 million people who don't have it, as well as more affordable and less burdensome to those who do, and to the employers who still deliver the bulk of medical insurance to workers.

Washington Post blogger Ezra Klein writes:

It's worth taking a step back for a second to consider the weight of the moment. It's been 15 years since Congress last tried, and failed, to reform the American health care system. Fifteen years in which everything has gotten worse. In which health care costs have risen and insurance coverage has contracted. In which individuals have lost their protection and businesses have lost their competitiveness.

It's easy, in the daily jockeying between committees and factions and caucuses, to forget that something pretty big is happening here: Congress is trying to solve, or at least improve, one of the most severe and enduring public policy problems confronting the country. A problem that has resisted the efforts of Franklin Delano Roosevelt, Harry Truman, Lyndon Johnson, Richard Nixon, Jimmy Carter, and Bill Clinton, but is pressing enough that for all its difficulty, it has never dropped from the agenda.

The Washington Post's Shailagh Murray recalls the collapse of "Hillarycare" in the early 1990s and writes:

The great unknown of the health-care debate as it unfolds in the months ahead is whether the current political landscape will prove more hospitable to mandates, cost controls and tax increases -- all measures now on the table that helped doom the Clinton plan.....

Even Republicans concede that Obama enjoys some key advantages the last Democratic president did not.

But Murray sets up what is likely an impossible standard for Obama to meet: "Big, ambitious bills need big, bipartisan margins not only to pass but also to earn credibility with voters," she writes. Then, in the very next sentence she illustrates why that's so unlikely: "Republican lawmakers know that the more GOP votes Obama can secure, the more he will shield Democrats from [an] electoral backlash in 2010."

By Dan Froomkin  |  June 10, 2009; 12:00 PM ET
Categories:  Health Care  
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Next: Incoming: More Torture Documents


This is John McCain's plan and it stinks. If this was Obama's plan all along that is what he should have said on the campaign trail. Why should any employer provide health insurance if their workers are to be penalized and why should any employee now want it as a benefit? Don't say you aren't raising taxes on average working folk out of one side of your mouth and then talk about taxing what may in some cases be a benefit larger than some people's take home pay.

Posted by: SarahBB | June 10, 2009 12:27 PM | Report abuse

How is a couple with an adjusted gross income OVER 200k a year deemed middle class?

As explained in the CQ, "the plan Obama seems about to support ... [taxing health care benefits of] individuals making over $100,000 or couples making over $200,000 would generate $162 billion."

Why would that excite opposition among ordinary people? Maybe 200k a couple is middle class in the beltway or to TV reporters but it is not where I live in Southern California.

Posted by: pmwarren | June 10, 2009 12:27 PM | Report abuse

I have been against this when the republicans were pushing it and I am against it now. I do understand that the reason for the taxation is differing phillosophies in that Obamma wants to use it to pay for national health insurance while the republicans were using it in an attempt to push insuarance from the companies to the individuals. Either way I don't like it one bit regardless of who takes the hit or submits the plan.

However like most issues I am sure that the republicans will hammer at this proposal and ignore their own sordid past on the issue.

Posted by: m_mcmahon | June 10, 2009 12:35 PM | Report abuse

Obama's actions represent another socialistic maneuver to take from one group and give to another.This leftist politician who needs two teleprompters to utter a simple declarative sentence duped the American voters who chose change without examining Obama's liberal voting record and obscure background. He has initiated the demise of our country, a condition from which we will never recover.

Posted by: tsapp77 | June 10, 2009 12:43 PM | Report abuse

Every year more and more employers are dropping health insurance benefits for employees. Those employers that keep health insurance benefits are increasing premiums to make the employees pay more and more of the tab.

At this rate, within a few years there won't be many Americans left with health insurance benefits to tax.


Posted by: DEFJAX | June 10, 2009 12:44 PM | Report abuse

Yes, this is a backtrack on Obama's part, and yes, it will give fodder to the right wing who want to land on him for something/anything (though most of the right did not have a problem with McCain's full taxation plan while they will have huge issues with this partial taxation plan).

The reality is the healthcare system is seriously broken, needs to be fixed, and if this is the price we have to pay to get it done, then so be it. Employers are dropping coverage every year. Those who are left with it have seen costs double in the last five years, despite a huge shift in costs to employees. There is nothing sustainable about this.

Posted by: scott1959 | June 10, 2009 1:01 PM | Report abuse

Isn't it better to understand WHY the system cost so much, before taxing anything?

They're asking for money without presenting a plan, aren't they?

Why don't they start by limiting expenditures, say, by negotiating for set prescription prices?

If they're going to ask the people to sacrifice, (and 100,000 aint' what it used to be), they should ask those profiting enormously from health care to sacrifice, too.

The solutions here are protecting the greedy and criminal, meaning the problems will continue.


Just like Wall Street and the torture issue -- seems to be a theme with Obama, too bad.

Posted by: thegreatpotatospamof2003 | June 10, 2009 1:05 PM | Report abuse

What does this fix? His plan for health care is to tax it now???? WTF?

How does taxing health care benefits help reduce the escalating cost of health care?!?!?! HOW?!?!? How come noone points this out?

I guess I may as well have voted for McCain.... we're still in Iraq, we're still shoveling money into banksters pockets, no accountability for anyone (I'm referring to the torture and the deregulating Larry Summers), and health care costs are still out of control AND I get taxed on it. Change my a$$.

Posted by: pimpinbenzo73 | June 10, 2009 1:06 PM | Report abuse

This combined with a lack of a gov't entity for a CHOICE in health care is disastrous. It's the worst of both sides!!!

What the F

This tax would end up whacking my family and that's all well and good.......I don't mind paying a bit more, but not at the benefit of the same insurance companies and detriment of the majority of Americans. The only way this is palatable is to use the efficiencies/buying power of the federal gov't to bring the administrative costs way down on private insurance. Using the beloved freepers market calculations to benefit the majority instead of the few would be a welcome change. If Blue Cross can't get their costs down then citizens could have a reliable plan with reasonable premiums courtesy of Uncle Sam. That's what I want.

Posted by: theobserver4 | June 10, 2009 1:07 PM | Report abuse

If my overall health care bill goes down then ok. If I pay more and don't get anything more then it is a nonstarter. We already pay too much for too little. If President obama messes this up it is one area that will lose him a great deal of support. He is certainly dead right that this is an area, one of many that faith based free marketers have deliberately neglected, that need fixed now and not later.

Posted by: John1263 | June 10, 2009 1:10 PM | Report abuse

What part of fraud did people not get when they voted for Obama? Another day, anD another broken promise that moves us closer to more outrageous taxes and more govenment. I am glad I am starting to read on a Froomkin blog, that people are starting to question Obama. About time.

Posted by: mmourges | June 10, 2009 1:16 PM | Report abuse

guess I may as well have voted for McCain.... we're still in Iraq, we're still shoveling money into banksters pockets, no accountability for anyone (I'm referring to the torture and the deregulating Larry Summers), and health care costs are still out of control AND I get taxed on it. Change my a$$.
They're trying, Obama's people. I dunno, maybe there is a division between the creeps like Rubin and Summers, and the others.

And I give them that -- I think Clinton and Gates have handled NK, (up to this point, anyway)very well, Kim threatening a nuclear offensive, forcryingoutloud. Obama, if he does't screw up, has helped to redefine American power after the dim-witted Katrina that was Cheney.

McCain had a lot of neocon advisers in his campaign, I can't see that he would have necessarily chosen a better path.

Nothing is guaranteed -- you hope they listen to the right people, and make the right decisions.

Until they get rid of the outright criminal and the stupid, though, the country will fail.

Posted by: thegreatpotatospamof2003 | June 10, 2009 1:23 PM | Report abuse

"limited taxation"


Posted by: mdsinc | June 10, 2009 1:32 PM | Report abuse

This is the worst idea yet. We are now going to tax health care benefits while at the same time giving away millions of dollars to consumers to encourage them to buy new cars. This is beyond stupid.

Heatlth care costs are high but for people with insurance, our helath care system is pretty darn good. The problem is making sure that those who fall outside its protection get protected. Making good health care more expensive is not the solution. If we need to generate more revenue to cover everyone, we should raise taxes on gasoline, alcohol, cigarettes, or just increase taxes across the board, not tax one thing that is an unmitigated social good - health care.

I voted for Obama but it's time he started standing up to his friends and thinking seriously about saying no to some of them on expensive, non-key spending. I didn't vote for Obama in order to give Nancy Pelosi and Tim Giethner a license to spend without adult supervision.

Posted by: jfc1 | June 10, 2009 1:37 PM | Report abuse

The source of the problem (or crisis) of health care in the United States is complex.

Nevetheless, it is clear that a major part of the problem can be traced to how society in the US is structured and how it has evolved over the last few generations.

Structural problems like rampant obesity, lack of quality foods in schools, poor nutritional habits, non-existent regulation of food and drugs, lack of quality sex education, excessive stress, too many guns that injure people, too many unnecessary and profit driven prescriptions, excessive insurance and medical administration, as well as abuses in the legal system, have all helped to make US health care costs the highest in the industrialized world.

A new tax on insurance benefits does not address these underlying problems at all. In fact, it indicates that the Obama administration is not asking itself, nor the US population the right questions. Until we do, this health care crisis will just go on and on--with or without insurance coverage being applied to everyone.

Posted by: kross1 | June 10, 2009 1:41 PM | Report abuse

We know why the system costs so much right now. That has been known for some time:
--pure inflation (docs raise their prices every year)
--technology (new stuff gets used and needs to be paid for)
--increased utilization (we do more stuff for the same diagnosis)
--cost shifting (insured patients pay for the costs of the uninsured)
--defensive medicine (docs afraid of getting sued so they do every test under the sun to cover themselves)
--pure waste and inefficiency (look at the New Yorker article on McAllen TX for a primer on this). This is due to lack of Health IT and Comparative Effectiveness Research. Estimates are 30% of spend is waste.

These things drive costs and have for years.

As for asking for money before there is a plan....there are plans, all very similar. The Senate and the House have plans that are pretty well baked at this point, still some negotiating, but the major points are increasingly known. That being the case, we have a pricetag.

If we have a pricetag, we need to figure out how to pay for it.

Does taxing alone fix anything? Of course not. But fit into the bigger picture, it may be necessary. Or tell me a better revenue source.

Posted by: scott1959 | June 10, 2009 1:45 PM | Report abuse

By reversing his campaign promises on this and other issues, Obama's plan is obviously a one term presidency

Democrats need to start searching for someone viable or we'll go back the the Jesuslandia stone ages with Gringrinch or Bishop Romney

Posted by: coloradodog | June 10, 2009 2:03 PM | Report abuse

I guess I may as well have voted for McCain.... we're still in Iraq, we're still shoveling money into banksters pockets, no accountability for anyone (I'm referring to the torture and the deregulating Larry Summers), and health care costs are still out of control AND I get taxed on it. Change my ------- Posted by: pimpinbenzo73

Guess you've been O'bamboozzled!

Posted by: pKrishna43 | June 10, 2009 2:07 PM | Report abuse

O'Bama the Messiah, also known as the Chocolate Jesus, had better watch out. He is hell bent on destroying the economy and giving the upper middle class worries about more taxes. Nemesis approaches.

Posted by: ravitchn | June 10, 2009 2:12 PM | Report abuse

C'mon, everyone knew 0bama was lying!

Everytime I pointed out one of his mindless contradictions before the election to an 0bama supporter, they'd always reply "Oh, they all lie!"

Ok, so he lied, you knew it, and now he's proving it.

There's a story here?

Posted by: NeverLeft | June 10, 2009 2:13 PM | Report abuse

If O'Bama continues to screw us enough, those of us who voted for him will start calling him a again.

Posted by: ravitchn | June 10, 2009 2:16 PM | Report abuse

The most logical approach to improving our health care system is to take advantage of the experiences of countries which have implemented successful systems; for example, Denmark, France, Germany, Italy and Switzerland. These systems provide universal access to high quality health care. Funding is by a combination of private and government sources. A key feature is an emphasis on reducing administrative and documentation costs.

Unfortunately, the Obama administration appears to be pursuing the same old disastrous errors of increasing administrative complexity and costs and failing to make any improvements in the overall functionality of our health care system.

Posted by: robbiex | June 10, 2009 2:19 PM | Report abuse

As a Canadian, I am constantly amazed at the energy that has been spent on the health care debate in the US. Unfortunately, almost all arguments against "Canadian style" healthcare come down to poor service, long waiting times, and of course, the government being involved. Yes, we pay higher taxes, but we understand that nothing is free, and a civilized society owes its citizens some basic protections. Every other country in the western world appreciates this, and taxes their citizens for this purpose.
As always, you all seem to want your free lunch.

Posted by: digitalideas | June 10, 2009 2:22 PM | Report abuse

For members of Congress, it's not about Obama, it's not about health care, and sure as hell not about America. It's only about how it affects their re-election. If they vote for X, will it cut into their contributions - will it draw a primary opponent? Nothing else matters.

Posted by: dickdata | June 10, 2009 3:08 PM | Report abuse

"If we have a pricetag, we need to figure out how to pay for it. Does taxing alone fix anything? Of course not. But fit into the bigger picture, it may be necessary. Or tell me a better revenue source."

Scott1959 (1:45 p.m.) is entirely correct. Those of us who believe that a public plan is essential to any solution have to acknowledge that public plan = public spending = public financing. And that means taxes.

Look, I'm blessed with a good-paying job with great health insurance and other benefits. I have five weeks paid vacation a year. I'm taxed on the money I'm paid while I'm on vacation, even though I'm not working for it. Why should I not be taxed for the money my employer pays for my health insurance? I'll still be better off than having them pay me that amount in cash and having to buy my own insurance, because I'd never get the same rate my employer gets.

And, presumably, my employer's costs will go down because their cost won't include the subsidy for all the uninsured people who President Bush said should go to the emergency room. ("Health insurance premiums for an average family are $1,000 a year higher because of costs of health care for the uninsured, a new report finds." AP, 5/28/2009)

The comments to this piece again remind me of how fractured our society has become. The notion of sharing, of helping the less-fortunate, of the greater good, is scorned as contemptible, weak-minded, "socialism." Greed and self-interest are virtues, and "survival of the fittest" means the triumph, not of those who work hard and play by the rules, but of those most able to buy the government they desire.

Oliver Wendell Holmes said, "I like to pay taxes. With them I buy civilization." From those who vilify any and all taxes, whether their object is to support a war they wholeheartedly endorse or a social program that would benefit their fellow citizens, all I hear is, "To hell with Civilization! Bring on the Dark Ages."

Posted by: dwiltzee | June 10, 2009 3:42 PM | Report abuse

Oh yes, we'd all be so much better off with McCain the Torture-Supporting Torture Victim and the Snow Queen in charge.

Problem: people quit spending money, so the economy is crashing.

Real World Solution: offset the decreased consumer spending with increased government spending to minimize the impact of the recession.

GOP Solution: tax cuts and an across the board government spending freeze! Blame Obama! Put an apostrophe in his name so it looks more Muslim! Insist on the existence of biases against you and provide no evidence!

Posted by: BigTunaTim | June 10, 2009 3:45 PM | Report abuse

Health care spending needs to be rationalized for improvements in the system to take effect. Right now, the subsidy for health care benefits flow overwhelmingly to upper income people who need the help the least, while more people 14 million and growing every day have no coverage because they can't afford it. Why subsidize the affluent who don't need it?

Posted by: srw3 | June 10, 2009 3:47 PM | Report abuse

Dwiltzie said it about as well as any I have seen. The one other thing to mention, besides the loss of tax revenue, is the unfairness of not taxing these policies. The insurance from employers is in lieu of wages and should be counted as wages.

The farmer and all other self employed and employees of small firms that cannot provide health insurance do not have the double advantage of a tax preferenced benefit. Adding insult to injury they must go to a generally ineffectively regulated market where the cost of comparable (to employer provided) insurance is much greater.

The hubris of Baucus and Grassley in doing back room consultations with Pharma and the American Health Insurance Plans organization is truly stunning. Both of them have been in congress long enough to forcefully present ideas to prevent some of the problems we are now encountering.

It is difficult for me to believe anything good can come from relying on the insurance industry, pharma,the AMA or hospital association coupled with the sclerotic thinking of the same old tired representatives that have passed up reform for the last 30 years.

Posted by: sauerkraut | June 10, 2009 4:08 PM | Report abuse

"Congressional estimates suggest that taxing workers for the value of benefits above the current cost of the standard health plan for federal employees -- the plan Obama seems about to support -- would, by contrast, raise $418 billion over 10 years."

I could go for that IF I could get health care at the same cost as the standard plan for federal employees.

MY version of national health care is simple: let every person in the country buy into the federal employees' plan. We'd have to pay both the employer and the employee halves, but even at that, it would be MUCH cheaper than individual plans now available, or even small group plans.

OR they could fix this by taxing benefits that SUPPLY health care better than what's available to federal employees, as long as they get rid of the old "pre-existing condition" rule that prevents me and many others from being able to get any health insurance at all.

The can't, however, simply tax health insurance that costs more. The feds keep their costs down by having the biggest employee pool in, perhaps, the world.

Posted by: theRealCalGal | June 10, 2009 4:15 PM | Report abuse

Simple answer, stop paying for health insurance.

Let others pay for your care.

It's a win-win solution: free health care, lower taxes.

Posted by: 2xy4k9 | June 10, 2009 5:33 PM | Report abuse

dwiltzee is right on

Thanks for the mention on the $1000/family cost shift that the uninsured cost the average employer....a crucial statistic I failed to, done correctly, universal care will spread the cost and employer costs should fall (or increase far less rapidly), and the uninsurable get coverage

Posted by: scott1959 | June 10, 2009 5:53 PM | Report abuse

I'm afraid that President Obama's aspirations are outstripping reality - the reality being that we will be in hock for years attempting to revive the economy, aggressively pursue domestic issues such as health care reform, while dealing with the costs of overseas military interventions and nation building in Iraq and Afghanistan.

In the face of all these responsibilities, if we are serious about repairing an inequitable health care system along with all these other expensive commitments, the issue of taxing health benefits, in the overall context, is akin to arguing about the shape of leaves on the trees in the forest.

It is correct that the President made a promise he is not now intent on keeping. And maybe this is the time to shelve health care reform in the interest of shrinking our priorities, reducing government outlays, and thinking long term about our national debt. By themselves, Medicare, Medicaid and Social Security are ticking time bombs that are belt-strapped to the elephant in the room.

The problems we face are enormous. We are now faced with an uncomfortable and unavoidable reality that the American public, with the Republican Party as the primary cheerleader, have tried to avoid for years (however, Democrats are not exempt either). Current economic circumstances should once and for all bury the unrealistic notion that we can maintain government services, entitlements and overseas commitments, while maintaining tax cuts, and dare I say it, without increasing taxes.

The Canadian poster, digitalideas, gets it. How long will it take for us to acknowledge the hard truth, and face it with maturity?

Posted by: MillPond2 | June 10, 2009 6:02 PM | Report abuse

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