President Obama recently put health  care reform back into the spotlight by putting forth his own plan, loosely  based on the legislation drafted by  the House and Senate over the past year. In order to pay for the high  price of reform, Obama’s proposal includes a number of tax increases.
 
Basics of the Legislation
Obama’s plan would cost an estimated  $950 billion over the next ten years, and according to WhiteHouse.gov  it would extend coverage to 31 million Americans. It would end discrimination  against Americans with pre-existing conditions, and bring greater accountability  to the health care industry. The President even claims the plan would  reduce the deficit by $100 billion in the next decade, and $1 trillion  during the second decade. 
Opposition and 51 Vote Passage
Republicans in Congress have strongly  opposed previous health care reform attempts and they now have enough  votes to filibuster any future legislation. However, the White House  and Democratic leaders in the Senate have threatened to use a process  called “reconciliation” that would allow them to pass a bill with  only 51 votes. Technically, this tactic can only be used on tax and  spending bills, the most notable example was when President Bush used  a reconciliation vote to pass the now infamous Bush Tax Cuts.
 
Medicare Tax Increase
The centerpiece of Obama’s plan to  pay for the costs of health care reform is a 0.9% increase on the Medicare  tax rate for individual taxpayers earning $200,000 or more per year.  The rate increase would also apply to married couples earning over $250,000  a year that file a joint return.
Medicare Tax Extension
Another Medicare related tax increase  is Obama’s desire to impose the 2.9% tax rate on interest, dividends,  annuities, and most other investment income for individuals making over  $200,000 and joint filers making over $250,000 per year. 
 
This would represent a drastic change  in American tax laws as the Medicare tax is typically considered a payroll  tax that is only levied on wages. According to the Chicago-based Bretton Woods  Research group, the 2.9 %  tax on unearned income would produce a 3.5 percent to 4 percent decline  in the broad stock indices.
Lesser Penalty for High End Policies
Obama’s proposal does include a tax  on high-cost (Cadillac) health insurance policies, but it would not  take effect until 2018 – as opposed to the 2013 date in the Senate’s  legislation. Although the tax will be levied on insurers it is widely  expected to result in reduced benefits for employees. In his proposal,  Obama did raise the limits on this tax, and if the legislation became  law the excise tax would only apply to individuals with premiums above  $10,200 and $27,500 for families.
Fees on Pharmaceutical Business
Another source of funding in Obama’s  plan are fees on the pharmaceutical industry – led by New York-based  Pfizer – would be forced to pay over $10 billion in fees over the  next 10 years. These fees would take effect faster than the Cadillac  taxes, as pharmaceutical companies could begin making payments as early  as 2011.
Fate of the Legislation
In order to become law, Obama’s proposal will have to jump through a few hoops. Both the Senate and the House of Representatives need to pass the controversial bill before it can be presented to Obama for a signature. Republican leaders are already speaking out about the legislation, and it will no doubt be a hot topic at tomorrow’s health summit at the Blair House.