Health care negotiators are looking at options for easing a proposed health insurance tax that has angered organized labor, including the possibility of a new levy on the investment earnings of upper-income people.
The idea is to extend the Medicare payroll tax — which now applies only to income from wages — to cover some of the investment earnings of couples making more than $250,000 a year, and individuals earning above $200,000, a Democratic official said Tuesday. That would make up lost revenue from scaling back the insurance tax.
Many ideas are being discussed, and no final decisions have been made, said the official, who spoke on condition of anonymity because of the sensitivity of the negotiations between the White House and Congress.
Prompting the review is an outpouring of complaints from labor leaders angry over President Barack Obama's support for a tax on high-cost health insurance plans. The 40 percent levy would fall on employer health plans worth more than $8,500 for an individual or $23,000 for a family.
Although Obama terms them "Cadillac" plans, union leaders say many working-class Americans who have negotiated good benefits in exchange for lesser pay would be hurt. The tax is a cornerstone of the Senate bill's approach to controlling costs. The idea is to nudge people into equally comprehensive, but cheaper, coverage. Government analysts estimate the pain could be widely felt, with the tax hitting 22 percent of insured workers in 2019.
White House spokesman Robert Gibbs says Obama is open to adjusting the tax so it would affect fewer people. There has been discussion of raising the threshold for the tax from $23,000 to $25,000 or higher. It has already been raised for first responders and workers in certain high-risk fields, and the levy could be softened for more unionized professions.
The foregone revenue from tweaking the insurance tax would be made up from the investment accounts of upper-income earners. (Pensions and retirement accounts would not be taxed.) The Senate bill already calls for raising the Medicare payroll tax on wages to 2.35 percent for couples making over $250,000 and individuals making more than $200,000.
But extending reach of the Medicare tax to investment income would set a new precedent. For more than 40 years, the tax has applied solely to wage income. It is currently set at 1.45 percent for workers, equally matched by their employers.
It's not the first time health care negotiators have considered applying the payroll tax to investment income. Senate Majority Leader Harry Reid, D-Nev., took a look at a similar idea several weeks ago. He ultimately decided not to include it in his bill, which passed the Senate on Christmas Eve.
Underscoring the stakes in the dispute, Obama met with about a dozen heads of the country's biggest unions Monday evening at the White House, after a day when labor leaders fired broadsides at the president over the insurance tax.
The president of the AFL-CIO, Richard Trumka, warned that Democrats risk catastrophic election defeats similar to those in 1994 if they fail to come up with a health bill labor likes. Disillusioned union members might just not show up to vote, he said.
"A bad bill could have that kind of effect ... where people sit at home," as happened in 1994, when Democrats lost control of Congress, Trumka told reporters.
The head of the International Association of Firefighters, Harold A. Schaitberger, made similar threats. "The president's support for the excise tax is a huge disappointment and cannot be ignored," he said in a statement. "If President Obama continues to support it and signs a bill that includes the excise tax on workers, we will hold him accountable." Schaitberger did not attend the White House meeting.
Trumka said labor groups prefer the approach in the House bill, which raises income taxes on the wealthy to pay for expanded health insurance coverage.
He stopped short of saying labor would actively oppose the bill if the insurance tax survives. Trumka said bringing Americans health care reform "is too important for us to get this close and then say, `We quit.'"
The dispute over the tax is one of the main sticking points between House and Senate Democrats as they work to reconcile health legislation passed by each chamber. They're looking for a compromise that Obama could embrace and sign into law in time for his State of the Union address sometime next month. With Obama behind the Senate tax approach, the final bill is likely to include it in some form.
On another disputed issue, a group of Democratic lawmakers from Texas urged the negotiators to follow the lead of the House in setting up a national clearinghouse for individuals and small businesses to buy health insurance. The Senate calls for state purchasing pools, and there's concern that states governed by Republicans may opt not to create them. The insurance industry supports the Senate approach.
Associated Press writers David Espo and Sam Hananel contributed to this report.
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