2009-07-09 04:11:31
By STEPHEN OHLEMACHER, Associated Press Writer Stephen Ohlemacher, Associated Press Writer Wed Jul 8, 9:21 pm ET
WASHINGTON President Barack Obama promised to fix health care and trim the federal budget deficit, all without raising taxes on anyone but the wealthiest Americans. It's a promise he's already broken and will likely have to break again. Obama and the Democratic-controlled Congress have already increased tobacco taxes which disproportionately hit the poor to pay for extending health coverage to 4 million children in working low-income families.
Now, lawmakers are looking for more revenues to help pay for providing medical insurance to millions more who lack it at a projected cost of $1 trillion over the next decade.
The floated proposals include increasing taxes on alcohol, which could raise $62 billion over the next decade, and a new tax on sugary drinks such as soda, which could raise $52 billion.
Senate Democrats this week pretty much rejected a proposal by Finance Committee Chairman Max Baucus, D-Mont., to tax health benefits, an idea that Obama repeatedly criticized during the presidential election campaign but has refused to take off the table.
Sen. Chuck Schumer, D-N.Y., said negotiators are still looking for revenue alternatives. Asked during an interview with The Associated Press if they included tax increases on families with incomes less than $250,000 a year, Schumer said, "There are lots of things on the table now."
The health care bill is a long way from Obama's desk, but tax experts say the debate illustrates a stark reality: It is simply implausible for the vast majority of Americans to get a free ride while the nation tackles such an incredibly difficult and expensive issue.
"We're all going to have to contribute," said Eugene Steuerle, a former treasury official in the Reagan administration and now vice president of the Peter G. Peterson Foundation.
Paying for Obama's agenda might be easier, Steuerle said, if the nation wasn't already facing massive federal budget deficits for the foreseeable future.
"The dilemma is trying to do the new while the old is still unpaid for," Steuerle said.
The federal budget deficit is projected to hit an unprecedented $1.8 trillion this year on top of a national debt that has already topped $11 trillion. Obama insists that any bill on health care or climate change not add to the debt.
Obama says much of the $1 trillion needed for his health care overhaul will come from cutting costs. So far, drug companies and hospitals have agreed to provide 10-year savings of $235 billion.
Health care experts say cost cutting alone won't produce enough money to insure the nearly 50 million Americans who lack coverage. Moreover, Congress is obligated to follow budget rules that might not recognize many of the promised savings.
"The administration has an extremely difficult educational problem on its hands," said Henry J. Aaron, a health care expert at the Brookings Institution. "They understand that at some point tax increase are going to be necessary across the board.
"Yes, for the middle class, too," he added.
Obama made a firm tax pledge during the presidential campaign, repeating it numerous times in the weeks and months leading up to Election Day: no tax increases for individuals making less than $200,000 a year or couples making less than $250,000.
"Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes," Obama told a crowd in Dover, N.H., last year.
But less than a month after taking office, Obama signed an expansion of child health care financed by 62-cent tax increase on each pack of cigarettes.
Obama also signed an anti-smoking bill in June that grants authority to the Food and Drug Administration to regulate tobacco. To pay for the new program, a fee is being imposed on the industry and presumably passed on to consumers estimated to generate more than $5 billion over the next decade.
While not directly increasing taxes, a House-passed version of Obama's plan to reduce greenhouse gases blamed for causing global warming would similarly increase American families' home energy bills by $175 a year on average, according to the Congressional Budget Office.
Obama hasn't offered a detailed plan to fix health care, though his aides are working with lawmakers as they craft proposals. Obama included only a down payment for health care reform in the budget proposal he unveiled this spring.
He proposed limiting itemized tax deductions for individuals making more than $200,000 and couples making more than $250,000. The plan, which faces stiff opposition in Congress, would limit deductions for mortgage insurance, state and local taxes and charitable contributions, raising about $270 billion over the next decade.
Obama also proposed a series of business tax increases and accounting changes that would raise an additional $30 billion.
Kenneth Baer, a spokesman for the OMB, said Obama's cost reductions and tax increases add up to "a plan which gets you really close to what you need."
"Congress has other ideas," Baer said. "We'll work with them."
The appeal of Baucus's proposed tax on health benefits was the amount of money it could raise. Currently, employer-provided health benefits are not taxed, regardless of how generous they are.
One version of it would tax health benefits that exceed the value of the basic insurance plan offered to federal workers, raising about $420 billion over the next decade, according to the nonpartisan Joint Committee on Taxation. But limiting it to individuals making more than $100,000 a year and couples making more than $200,000 would raise only $162 billion.
The math illustrates how difficult it is to raise enough money to pay for expensive programs, when tax increases are limited to the wealthy.
"We're living in an era, over a period of 20 years or more, in which the idea that tax rates would actually be boosted is unutterable," said Aaron, the health care expert. "That has to stop."