Obama calls for additional taxes to offset budgeting mistakes that overstated revenue for health reform

May 12 2009

The Obama administration on Monday proposed $58 billion worth of new taxes in response to findings that returns from the original funding mechanism for President Obama's health care plan were overstated, the AP/Boston Globe reports (Ohlemacher, AP/Boston Globe, 5/11).

Revised Treasury Department estimates show that Obama's main tax initiative for funding half of the 10-year health care reform trust fund -- through a 28% cap on deductions for U.S. households in the top two tax brackets -- would raise $266.7 billion over 10 years, about $51 billion less than the estimate of $318 billion included in the budget blueprint Obama presented in February. The other half of the fund would come from Medicare savings also included in the budget plan (Calmes [1], New York Times, 5/12).

The White House Office of Management and Budget now is proposing a $12.7 billion tax increase on life insurance companies, which includes a modification of a "dividends-received deduction," as well as a $24.2 billion increase from modifying the estate and gift tax to require "consistent valuation" of property (Schatz, CQ Today, 5/11). The valuation rules would affect less than three-tenths of 1% of estates in a given year, according to a senior Treasury official who spoke anonymously (Calmes [2], New York Times, 5/12).

The AP/Globe reports that Congress "has been cool to" Obama's original proposal for limiting tax deductions, noting that they could diminish charitable giving (AP/Boston Globe, 5/11). Senate Finance Committee Chair Max Baucus (D-Mont.) has said that he favors funding an overhaul using savings from the health system (CQ Today, 5/11).

Soda Tax

The Finance Committee on Tuesday is expected to hear proposals from various experts on how to pay for a health care overhaul, the Wall Street Journal reports. The Center for Science in the Public Interest plans to propose a federal excise tax on soda and other high-calorie beverages. Senior staff members for some Democratic senators who have a leading role in the health reform effort are discussing the idea in closed-door meetings, according to Senate aides. Lawmakers are expected to "narrow the list" of proposals in coming weeks, the Journal reports.

Supporters of a beverage tax say that consuming drinks sweetened with sugar can cause obesity, diabetes and other conditions, and that such a tax could yield a decrease in health problems and spending. The Congressional Budget Office estimates that adding a three-cent tax per 12-ounce serving of these drinks would bring in about $24 billion over the next four years, although lawmakers have not indicated how large of a tax they would consider. Such a tax "would pay for only a fraction of the cost to expand health insurance to all Americans and would face strong opposition from the beverage industry" and would "spark a backlash from consumers," the Journal reports.

Michael Jacobson, CSPI's executive director, said he also will propose tax increases on alcohol, bans on trans-fat, and reductions in sodium content in packaged and restaurant-served food (Adamy, Wall Street Journal, 5/12).