Bill taxes rich to pay for care

WASHINGTON – House Democrats on Tuesday unveiled a plan that would force the richest 2 million U.S. taxpayers to shoulder much of the cost of an expansion of the nation’s health care system, agreeing on a provision to impose a surcharge of as much as 5.4 percent on those making more than $1 million a year.

The House proposal aims to extend insurance coverage to 37 million Americans over the next decade, covering more people through Medicaid and providing subsidies to help others meet a new federal mandate to purchase insurance. Democratic aides said the proposal would cost more than $1.2 trillion over the next 10 years, and would ensure that 97 percent of Americans were enrolled in a health plan by 2015.

About half of the cost would be covered by reducing spending on federal health programs, primarily Medicare, which serves the elderly and the disabled. But much of the rest of the money would come from a new tax on families who earn more than $350,000 a year and individuals who earn more than $280,000. The taxes, which would take effect in 2011, would affect about 2.1 million taxpayers, the nonprofit Tax Policy Center projected.

The surcharge would start at 1 percent and rise to 5.4 percent on income exceeding $1 million. Combined with the expiration next year of tax cuts enacted during the Bush administration, the surcharge would drive the top federal tax rate to 45 percent, the highest level since lawmakers rewrote the tax code in 1986.

House leaders defended the plan by saying it targets those most able to pay – the wealthiest 1.2 percent of households – while honoring President Barack Obama’s pledge to protect the middle class from higher taxes.

Obama issued a statement praising the House plan. At a time when health care costs are “crushing businesses and families and placing an unsustainable burden on governments,” Obama said, “key committees in the House of Representatives have engaged in unprecedented cooperation to produce a health care proposal that will lower costs, provide better care for patients and ensure fair treatment of consumers by the health care industry.”

But the plan has drawn sharp attacks from Republicans and is already creating friction with Democrats in the Senate.

“Tax is a four-letter word” with voters, said Sen. Ben Nelson, D-Neb. Even families who do not rank in the top 1 percent of earners “hope they’re going to be there someday,” Nelson said. “So they don’t necessarily think it’s fair.”

Senate negotiators have all but abandoned plans to directly tax the wealthy and are focusing instead on an array of smaller, more narrowly targeted revenue measures that would raise money from drug and insurance companies, as well as individuals and corporations. A tax on employer-provided health benefits remains part of that discussion, but Sen. Kent Conrad, D-N.D., who is promoting a tax on the most generous 1 percent of private plans, conceded Tuesday that such a proposal is “a very tough sell.”

House leaders said the surcharge on the wealthy in their plan offers their best chance to push a bill through the House by the end of the month, meeting Obama’s deadline and building momentum for his top domestic priority.

“That’s where the votes are,” said House Ways and Means Committee Chairman Charles Rangel, D-N.Y.

Republicans criticized the surcharge as a job-killing tax increase that would fall disproportionately on small businesses, whose owners often report earnings on their personal tax returns. “You can’t tax the job creators and expect them to create jobs,” said House Minority Leader John A. Boehner, R-Ohio.

The House plans to press ahead with its proposal with the goal of working out the differences between the two chambers in a House-Senate conference later this year. The House and Senate are far apart on issues including new taxes and the creation of a government-sponsored insurance plan known as a public option, but House leaders focused Tuesday on what they see as the historic achievement of crafting a health care plan that they think can win House approval.