Senate weighs new taxes to fund reform

"Senate Finance Committee Chairman Max Baucus (D-Mont.) presented his members Thursday with more than a dozen ways to pay for health care legislation, ranging from new fees on industry to an income-tax hike on couples making more than $1 million a year," Politico reports.

"Faced with a $320 billion hole in his reform plan, Baucus revisited options that were considered in the past, but never emerged as top-tier options because he believed taxing employer-provided health benefits was the best way to provide that revenue. The Senate Democratic leadership nixed the idea this week, saying the caucus could not support it because it would hurt the middle class. ... Instead of relying on one major source of funding, the committee will have to piece together revenue from a variety of places."

Possible funding sources include "broadening the 1.45-percent Medicare tax on earned income to 'passive income,'" levying a "five-percent surtax on individuals who earn more than $500,000 and couples that make $1 million," taxing employer-provided health benefits "at a higher level than had been considered," "capping the tax break on itemized deductions at 28 percent," issuing "tax credit bonds to pay for the proposed Medicaid expansion," charging fees to drug companies and hospitals and raising taxes on sodas and sugary drinks. The Finance Committee will also "renew their efforts to find more savings in the health system," but "the challenge is convincing the Congressional Budget Office to recognize these initiatives as true cost-savers" (Brown and Rogers, 7/9).

Roll Call adds that Sen. Olympia Snowe, R-Maine, said that a value-added tax was off the table (Drucker, 7/9).

Meanwhile, Majority Leader Harry Reid, D-Nev., did "an about-face" when he said he supports the Finance Committee's "efforts to strike a deal," Roll Call reports in a separate article. His statement of support was "a stark contrast" from Tuesday, when he urged Baucus "to rein in his pursuit of GOP support for a package for fear it would cost too many Democratic votes." On Thursday, however, Reid was "effusive in his praise for the Finance Committee's work." He also "reaffirmed that he is committed to the August deadline" (Drucker, 7/9).

The Wall Street Journal reports that Reid and Sen. Charles Schumer, D-N.Y., "said they were amenable to considering a [non-government] cooperative – perhaps in lieu of a government-run insurance plan – to compete with private insurers." Schumer said that a public competitor should "keep the companies honest … be available right at the beginning to everybody, and have the strength to borrow…If it can do those things in a co-op form, I think we're open to it." Whether Republicans would support such a cooperative remains unclear, because "a co-op with close ties to the government might be viewed by Republicans as a predecessor to a government-run plan" (Yoest and Boles, 7/10).

In addition, "Senators working on health-care legislation are considering provisions to pare back the billions of dollars in tax breaks enjoyed by U.S. hospitals," The Wall Street Journal reports in a separate article. "More than half of the 5,482 hospitals in the U.S. are nonprofits that don't pay federal, state or local taxes, according to the American Hospital Directory," but "in the past decade, some nonprofit hospitals have amassed big cash surpluses, even as they engaged in aggressive bill-collection tactics. Some provide less in charity care than the value of their tax breaks."

Baucus and Sen. Charles Grassley, R-Iowa, are floating a proposal that would require hospitals "to offer a minimum amount of charity care, limit charges to the uninsured and tame their collection practices -- or face an excise tax." Nonprofit hospitals would "have a lot to lose. In a report issued in December 2006, the Congressional Budget Office estimated nonprofit hospitals were spared $12.6 billion in taxes annually, on top of the $32 billion in federal, state and local subsidies the hospital industry as a whole received each year" (Martinez, 7/10).