Democrats Debate How to Raise $600 Billion for Health Care

As the old saying goes, you can pick your poison. But now matter how you slice it, taking over health care and creating a government-run plan is going to be very expensive. Charlie Rangel and the Democrats might start by taxing Medicare for $344 billion in new taxes, then adding a new tax on soda for $112 billion, a new alcohol tax for $61 billion, and a new tax on employer-provided health care for $200 billion – but that still leaves them more than $3 trillion short.

Nevertheless, they are gamely going at it – studying all the possible ways they can think of to gouge you for the privilege of ruining your health care:

Every one of House Ways and Means Chairman Charles Rangel’s proposed options is controversial, and runs the risk of angering interest groups ranging from the small business lobby to the moribund newspaper industry. Rangel is considering a new $37.5 billion tax raised by denying deductions taken by pharmaceutical companies for prescription drug advertising expenses, for example…

Taxing employer-provided health coverage in excess of federal employee benefits is an option described, although clearly not the preferred one in the House. Unions oppose that plan, which has more momentum in the Senate…

The Ways and Means paper assumes the entire $600 billion in new taxes would begin to take effect on Jan. 1, 2013. A 2 percent surtax on individuals earning more than $200,000 and households with $250,000 or more in adjusted gross income would raise $256 billion.

That would be in keeping with President Obama’s pledge not to raise taxes on all but the wealthiest households, and the 2013 effective date assumes the nation would be out of recession. But many small-business owners are already chafing at seeing the top tax rates hiked to 36 percent and 39.6 percent in 2011 under Obama’s budget plan. [How many small businesses would survive when their marginal rate goes from 36% to nearly 42%? – bf]

Rangel’s paper couples the 2 percent surtax with a 0.375 percent increase in the Medicare tax on both employers and employees, estimated to raise $344 billion — also likely to cause problems with the small business lobby and perhaps liberal interest groups that argue it is a regressive tax. Currently, employers and employees each pay a 1.45 percent tax to fund Medicare; the 1993 budget bill repealed the cap on income subject to the Medicare tax.

The options paper appears to recognize that raising the Medicare tax might be politically untenable. If that is the case, as a fallback the Ways and Means document suggests a number of revenue-replacing options, including limiting the tax exclusion and a $200 billion proposal to add a new 3 percent payroll tax on employers’ healthcare spending. The paper argues that employers would essentially come out even, because they would be saving money on employees’ health care under the overhaul bill…

Two other options — a value-added tax on goods and services, and a 0.65 percent increase in the Medicare tax — each could potentially raise the entire $600 billion without having to tinker with other areas of the tax code…

Rep. Allyson Schwartz, D-Pa., plugged her own plan at Tuesday’s meeting: a 10-cent tax on each 12-ounce container of a sugar-sweetened beverage like nondiet soda. That would raise $112 billion, the options paper said. “I was told by my dad not to drink sugary sodas my whole life, and I turned out all right,” Schwartz said. “This [tax] would make it a real treat.”

For Democrats, this is the fun part of the job – deciding whom to punish with higher taxes. No one shows that better than Rep. Schwartz, who wants us all to enjoy the fun that comes with high soda prices. And while she’s only talking about soda (for now), just remember that a VAT tax, higher costs for health care, and higher energy costs (thanks to cap-and-tax), will raise the price for all commodities. So while the only product she’s directly increasing the cost of is soda, her votes will yield higher prices for everything you buy.

Change you can believe in?