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Fact or fiction? Reform means income tax hike

A significant income tax increase will be part of health insurance reform. fact-checks this claim — and more.

Claim: A significant income tax increase will be part of health insurance reform.

A challenge in enacting insurance reform has been how to pay for expanding coverage to people who are now uninsured. The House bill and the Senate bill take what seem to be different approaches to raising revenue. The House has chosen a 5.4 percent surtax on income above $1 million for couples who file joint returns and above $500,000 for single filers. The Senate bill would impose a tax on insurance plans with premiums higher than $8,500 per year for an individual or $23,000 for family coverage. To pass a bill, House and Senate leaders will need to choose one proposal or the other, or perhaps a blend of the two. "We're headed toward a head-to-head contest on financing between the House proposal and the Senate proposal," said Gerald Shea, an official with the AFL-CIO labor confederation, which supports the House income tax hike.

Fact or fiction?
Fact. Senate Finance Committee chairman Max Baucus said the Senate bill's tax on high-cost insurance plans won't really be a tax on insurance. "After a while, there wouldn't be any tax, because companies just would find a way to avoid it," Baucus said, by which he meant employers will trim their insurance plans to keep them under the taxable threshold and instead will pay workers more in cash. Brookings Institution economist Henry Aaron agreed, saying, "Workers will receive a larger proportion of their compensations in the form of taxable wages, rather than untaxed health insurance. That's where the revenue gain comes from." The Senate bill would, in effect, be an income tax increase, as the House bill would. But the House bill would hit high-income people, while the Senate bill would have an impact on some middle-income workers who happen to have high-cost insurance.

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