Tax Pledge Puts Obama in Tricky Spot

Posted June 3, 2009 at 6:30pm

President Barack Obama is finding himself boxed in by a campaign vow not to tax employer-provided health insurance, as Congressional Democrats take a serious look at using revenues from just such a tax to help defray the massive costs of Obama’s plan to provide universal health care coverage.

Democratic aides emphasized that no final decisions have been made on whether to tap the revenues that would be available if they even partially end the exclusion from taxation of employee health benefits. But decisions are coming fast as plans move ahead to bring health reform bills to the floor in July. Within weeks, Obama may find himself hawking around the country legislation that includes a provision he so ardently rejected during the campaign.

Obama didn’t just oppose the exclusion. He all but drew a “read my lips— line in the sand.

“I can make a firm pledge: Under my plan, no family making less than $250,000 will see their taxes increase — not your income taxes, not your payroll taxes, not your capital gains taxes, not any of your taxes,— Obama said during an appearance in Dover, N.H., on Sept. 12, 2008. “My opponent can’t make that pledge, and here’s why: For the first time in American history, he wants to tax your health benefits,— Obama said. “Apparently, Sen. McCain doesn’t think it’s enough that your health premiums have doubled. He thinks you should have to pay taxes on them, too. That’s a $3.6 trillion tax increase on middle-class families. That will eventually leave tens of millions of you paying higher taxes. That’s his idea of change.—

Obama and his advisers have outlined a carefully nuanced position that in effect promotes his uneasiness with ending the exclusion — but doesn’t take the idea off the table.

Obama aides emphasize it was not in his budget or his health care plan. And Obama himself makes the case for his own health care pay-for, which would eliminate certain deductions for wealthier taxpayers.

While Democratic aides say anything is possible, they note the deduction rollback idea has little pulse on Capitol Hill, in part because it could slash charitable giving.

Ending — or at least partially ending — the employee health benefit tax exclusion is hard to resist for several reasons, Democrats say. A Finance Committee report last month noted that the exclusion cost the Treasury $132.7 billion in 2008. To give an idea of the power of this approach, eliminating the exclusion entirely — which is probably not in the cards — over 10 years could largely pay for the $1 trillion to $1.5 trillion cost of providing universal health care.

But beyond that, many see the move as good policy.

“There’s universal agreement that if you’re looking for policies to change incentives for using health care, people on the right and left would say that uncapped, unlimited [tax benefits] creates incentive in the wrong direction,— said one senior Senate Democratic aide. “That’s what makes this quite attractive. And if you take this off the table, where are you going to come up with the funds?—

None of the options to pay for health reform are attractive, and cost saving reforms touted by Obama will not do the job on their own.

As one Republican aide noted, lawmakers will find safety in numbers by choosing unpalatable tax-raising options and then “holding hands and jumping off a bridge together.— But lawmakers didn’t use the issue as a cudgel to whack their opponent over the head, as Obama did to Sen. John McCain (R-Ariz.).

Republicans are waiting to pounce. One senior House GOP aide suggested Obama was trying to play good cop to the Congressional Democrats’ bad cop and that he would in the end “reluctantly— accept eliminating the exclusion after being “forced— to do so by Congress

“The administration’s playing a game to get away from the fact that then-Sen. Obama used this very issue to attack Sen. McCain last fall,— this source said. “When they end up supporting taxing health care benefits, they can say, We didn’t want to, but Congress wrote the bill, so we had no choice.’ It’ll be a massively embarrassing flip-flop, but it’s a flip-flop everyone sees coming.—

Obama aides declined to offer comments beyond views White House officials have already expressed on the matter.