US Democrats Oppose Health Excise Tax Plan

by Mike Godfrey, Tax-News.com, Washington

09 October 2009

More than half of the Democratic members of the House of Representatives have signed a letter urging Speaker of the House Nancy Pelosi to reject any excise tax on high-cost health care benefit plans.

In the letter delivered to the Speaker on October 7, the 157 cosigners express their opposition to the Senate Finance Committee’s proposal to place a 40% excise tax on high-cost health care benefit plans, which the House members believe would be passed along by the insurers to insurance policy holders.

Congressman Courtney of Connecticut, who helped draft the letter, stated: "As Congress continues to work on comprehensive health care reform, it is important that we remember who we are fighting for and ensure that the people we are trying to help the most, aren’t hurt the most. This letter should send a clear signal to House Leadership that an excise tax on health plans will be an additional and substantial tax burden on working families. A majority of Democrats believes that is the wrong direction for health care reform."

"The proposed tax on benefits undermines a basic principle of the reform proposals – to build on the employer-based health care system," said Rep. Sander Levin of Georgia."The Joint Committee on Taxation says the Senate Finance Committee tax would hit approximately 15% of all employer-provided plans in the first year. By the seventh year, it would hit nearly 40% of plans. Proponents of the tax argue that it will help to reduce the growth in health care costs. This is a critical goal, one that I have been working on, but taxing benefits is not the way to achieve this aim."

According to Courtney, the Senate Finance Committee’s proposed 40% excise tax included in the America’s Healthy Future Act will "inevitably" be passed onto insurance purchasers.

Under the Senate health bill, unveiled last month by finance committee chairman Max Baucus, a Montana Democrat, the excise tax would apply to the aggregate value of employer-sponsored health coverage that exceeds a threshold amount, currently USD8,000 for individual coverage and USD21,000 for family coverage, beginning in 2013. However, Courtney argues that these thresholds have already been exceeded by many middle-income Americans, especially in states which tend to have higher health costs. Individuals who have foregone salary increases in return for better health coverage will also be hit by the new tax, he contends.

According to Baucus's revenue estimates, the excise tax would raise USD205.1bn through 2019, money that will help lower the cost of healthcare provision for low and middle income Americans and small businesses through the creation of new Healthcare Affordability Tax Credits.

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