How Will Health Reform Be Paid For?

To make health reform work, there has to be enough money to pay for the subsidies that make coverage affordable for working families.  The question is:  where will the money come from?

The most straightforward way is the House approach – an income tax surcharge on high-income households.  The current proposal is to tax individuals making $500,000 and couples making over $1 million a year – affecting only three-tenths of one percent of all taxpayers and raising a half-trillion dollars over the next ten years.  But some worry that it’s not right to make a few people pay from what should be a major national priority, even though those same people were the main beneficiaries of the Bush tax cuts.

The Senate Finance Committee would tax insurance companies that sell high-cost medical policies.  Union oppose this, because a chunk of their members compensation come through benefits rather than wages.  .  The Joint Committee on Taxation concluded that the greatest burden would fall on those making between $35,000 and $75,000 a year.  Of course, many of subsidies would go to the same income group.  So some folks with modest incomes and generous health insurance would end up paying for others with modest incomes, but no insurance.

The White House proposed capping the value of tax deductions, like those for charitable contributions and mortgage payments, for household in the top tax brackets — in effect raising their taxes. Because most charitable giving come from foundations, estates, and others that do not itemize deductions, and more of the rest come from households below the income cutoff, the proposal was expected to have only a minor impact on charitable giving.  However, political opposition has taken this proposal off the table.

So where will the money come from?