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House Labor Allies Balk at Tax on Health Plans

By Joseph J. Schatz, CQ Staff

October 7, 2009 -- As Democratic leaders on both sides of the Capitol work to piece together health care bills for floor votes in the coming weeks, allies of organized labor in the House are weighing in strongly against a Senate Finance Committee plan to tax so-called Cadillac health insurance plans.

Warning at a press conference Wednesday that the Senate Finance Committee's proposal to assess a 40 percent tax on high-value insurance plans is a "non-starter," Rep. Joe Courtney, D-Conn., sent a letter signed by 157 House Democrats, including several senior members of the Ways and Means Committee, to Speaker Nancy Pelosi, D-Calif., urging her to reject excise tax proposals.

Pelosi, who met with Ways and Means Democrats Wednesday afternoon on health care, has signaled an openness to the excise tax. But Chris Van Hollen, D Md., a panel member who also heads the Democratic Congressional Campaign Committee, stressed that the proposal is "not a preferred option" and promised that if the House leadership takes that approach, it will look nothing like the Senate plan. House Democratic leaders and tax writers are currently tinkering with their preferred financing mechanism, a surtax on wealthy Americans.

The excise tax plan, pushed by Senate Finance Chairman Max Baucus, D-Mont., is part of a broader bill that would cost $829 billion over 10 years, according to a Wednesday scoring by the Congressional Budget Office. The Finance Committee could approve its draft bill as early as this week, sending it to the Senate floor later this month.

The tax has raised concerns among some senators, but it is a central part of Baucus' plan to raise the revenue needed to pay for an expansion of coverage to the uninsured and other key parts of his bill. His effort has been encouraged by the White House.

Still, the 157 members signing the letter to Pelosi represent a majority of the House Democratic Caucus. And at the news conference, Courtney and other Democrats argued that the tax would hit workers—such as firefighters and police officers, who are often members of unions—whose plans cost more because they work in high-risk industries, not necessarily because they offer more generous benefits. The Senate bill, as amended, does set higher thresholds before the tax would take effect on plans for retirees and workers in high-risk industries.

Several lawmakers suggested that the tax might go against President Obama's pledge not to raise taxes on anyone making less than $250,000 a year, even though it would be imposed on insurance providers, not directly on workers.

The letter also expresses concern that the "transition relief rule," designed to minimize the impact of the tax on states with high health care costs, is inadequate.

Lobbying Push
The missive came as state and local union leaders flew into Washington to lobby lawmakers on the health care bill. Harold A. Schaitberger, general president of the International Association of Fire Fighters, appeared at the press conference and said that the tax could become similar to the alternative minimum tax (AMT) and trap more and more middle class taxpayers each year under the Finance Committee plan.

But while the expansion of the AMT, which was originally targeted at the wealthiest Americans, was not intended by lawmakers to achieve any policy goals, Senate tax writers designed the excise tax to expand over time. The provision is supposed to encourage companies to reduce the value of plans they offer workers as a way to control health care costs.

The Ways and Means, Energy and Commerce, and Education and Labor committees have all approved pieces of the House health care overhaul (HR 3200), and leaders are working to consolidate those pieces into a single measure in the coming days.

"This tax will not, it's safe to say, be in the House bill," Rep. Sander M. Levin, D Mich., said. But Courtney said members are "very concerned" that the language could end up in a final conference report given support for the idea in the Senate and the White House.

Still, the letter signers were wary of drawing too firm a line in the sand, and would not pledge to vote against an eventual health care bill that includes the tax. Rep. Pete Stark, D-Calif., said the letter was meant to "encourage changes to the bill."

The Ways and Means Committee-approved health care package does not include a similar tax; rather, it would impose a surtax on adjusted gross incomes above $280,000 for individuals and $350,000 for married couples. Higher rates would apply at higher levels of income.

But many Democratic lawmakers—some of whom also signed the Courtney letter—objected to the surtax, and Pelosi has said she would like to see it reduced.

Pelosi, however, downplayed any potential difficulty in finding the needed revenue, saying House Democrats will keep the cost of the House bill to $900 billion. "We're coming down to $900 billion in the coverage, so we can go up on the [surtax] threshold, because we're taking out $95 billion out of the bill," Pelosi said after meeting with Ways and Means Democrats.

Van Hollen said after the Thursday meeting that Ways and Means Democrats are tinkering with the income thresholds on the surtax. Chairman Charles B. Rangel, D-N.Y., said the Democratic caucus will be discussing the revenue side of the health bill on Thursday and will send the bill to CBO for scoring on Friday.

Richard Rubin contributed to this story.

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