US Senate Medicare Payroll-Tax Hike Draws Criticism
By Martin Vaughan, Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- Economists on Thursday criticized a Senate proposal
to raise Medicare payroll taxes on high earners to help fund a health-care
overhaul. But the idea was welcomed by some House Democrats as a viable solution
to help foot the bill for the health re-write.
Senate Majority Leader Harry Reid (D., Nev.) added the tax, which would
generate $54 billion over 10 years, to his sweeping health legislation to help
minimize its impact on the deficit.
Under the plan, most taxpayers would continue to pay a 1.45% Medicare
hospital-insurance tax, but single people earning more than $200,000 and married
couples earning more than $250,000 would be taxed at 1.95%.
Henry Aaron, a senior fellow at the left-leaning Brookings Institution, said
the extra tax on wages could influence high-income people to take their pay in
stock or other forms of compensation, rather than wages.
"I would rather see Congress rely on broad tax instruments like the income tax
than on payroll taxes," said Aaron.
Aaron applauded a separate provision in the Senate bill that would tax high-
cost insurance plans, with the aim of prodding employers and workers to choose
cheaper coverage options. Reid added the Medicare tax in part so he could afford
to scale back the tax on pricey insurance plans, which is opposed by some
Democrats.
Conservatives said the proposed Medicare tax increase undermines the liberal
argument that Medicare is a social-insurance program, not a vehicle to
redistribute wealth.
"The argument that it is not a welfare program, but a social insurance
program, has been demolished," said J.D. Foster, a senior fellow at the
conservative Heritage Foundation.
Under the bill, employers would collect the extra 0.5% on wages exceeding $
200,000, just as they now withhold Medicare taxes and remit them to the IRS.
Companies wouldn't be responsible for determining whether a worker's combined
income with his or her spouse made them subject to the tax.
Instead, some employees would have to remit additional Medicare taxes to the
IRS when they filed income-tax returns.
Legislation passed by the House earlier this month would impose a 5.4% surtax
on wealthy households to pay for increased benefits in its plan. House Democrats
remain opposed to the Senate's excise tax on so-called Cadillac insurance plans.
But they welcomed the Medicare payroll-tax increase as an idea worth exploring.
"I've always felt, if we're going to do entitlement reform, we have to do a
better job of means-testing the program," said Rep. Ron Kind (D., Wis.). "Are we
really going to have Warren Buffett pay the same and get the same benefit as
everybody else?"
Rep. Sander Levin (D., Mich.) dismissed criticism that an additional Medicare
tax would take money from the rich in exchange for no benefit. "The benefits
people would be getting include a sounder health-care system, and improved
security for the Medicare program," he said.
On the Cadillac plan tax, the Communications Workers of America union won a
last-minute addition that would allow workers who repair telephone and electric
lines to be treated as high-risk workers.
Those and other high-risk workers in the bill, including police, firefighters
and coal-miners, would be able to purchase more coverage before the 40% excise
tax kicks in.
A $2,500 cap on annual contributions to flexible-spending accounts is also
among tax changes proposed to pay for the Senate bill. The accounts have become
a popular way to use pre-tax dollars to pay for doctor's office visits,
medicines and other out-of-pocket expenses.
Because the cap isn't indexed to inflation, flexible-spending accounts would
become less and less useful over time as a way to plan for medical costs.
-By Martin Vaughan, Dow Jones Newswires; 202-862-9244; martin.vaughan@
dowjones.com
(END) Dow Jones Newswires
11-19-091713ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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