Health Reform Bill Progresses In US Congress

by Mike Godfrey, Tax-News.com, Washington

06 August 2009

The US health reform bill, which contains a number of revenue provisions, has taken another small step towards reality after it was approved by a third Congressional committee shortly before the summer recess.

The America’s Affordable Health Choices bill 2009 was passed by the members of the House Energy and Commerce Committee on July 31, having already been approved by the tax-writing Ways and Means Committee and the Education and Labor Committee. The trilateral committee members will now work through August to prepare the proposed legislation for a full House vote in September.

“We congratulate Chairman [Henry] Waxman and the members of the Energy and Commerce Committee for taking the next step in this historic process,” commented Ways and Means Chairman Charles Rangel and Education and Labor Committee Chairman Henry Miller. “Now all three committees in the House have said ‘yes’ to health insurance reform that reflects the principles that President Obama has set forth and delivers on the change American families, businesses and local economies need.”

Reducing health care costs for ordinary Americans is perhaps Obama’s top priority on the domestic front, but, with a price tag exceeding USD1 trillion, some of the cost of the reforms must inevitably be covered through extra taxation. The House bill proposes that well over half of the cost can be met through an income ‘surtax’ of 1% to 5.4% on joint filers with adjusted gross income of USD350,000 or more from 2011. While this means that Obama’s promise not to raise taxation for anyone earning less than USD150,000 per year remains unbroken, the idea of increasing tax is proving highly controversial, especially as the surtax will take a sizeable chunk out of small business income when the American economy is expected to be putting out green shoots of recovery.

The Senate, meanwhile, has been exploring less politically-charged options, such as taxing ‘gold plated’ high value health insurance plans which, some argue, are sucking up too much of America’s health care resources, and capping the amount of employer-provided health plans which can be taken tax-free. These proposals are, however, projected to raise far less in revenue than the surtax, and it may be the case that the final legislation will contain a blend of tax measures.

The House bill also includes some corporate revenue raisers, including codification of the ‘economic substance’ doctrine in tax shelter cases, limiting tax treaty benefits for certain offshore corporate payments and delaying the introduction of more liberalized worldwide interest allocation rules.

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