House Votes 220-215 to Pass Health Care Overhaul, Impose New Taxes on High-Income Households

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A House Democratic plan to tax wealthy individuals to help pay for a $1.1 trillion health care overhaul plan narrowly passed the House Nov. 7, placing an overhaul of the nation's system in the hands of the Senate.

The 220-215 vote came after a presidential visit for support and a long day of contentious debate, not just between Democrats and Republicans, but also among members of the House Democratic Caucus. Thirty-nine Democrats crossed party lines to vote against the legislation, while only one Republican, Joseph Cao (R-La.), voted in favor of the legislation.
Democrats said their plan would expand access to health insurance and lower costs, while Republicans said its $720 billion in tax increases would further hurt an ailing economy and raise health care premiums.
With action on the Affordable Health Care for America Act (H.R. 3962) completed at this stage in the House, the debate now turns to the Senate, where the leaders are trying to merge two bills (S. 1679, S. 1796) approved by the Health, Education, Labor and Pensions and the Finance committees.
President Obama welcomed the news of House passage and said he looks forward to seeing the Senate do its part.
“Thanks to the hard work of the House, we are just two steps away from achieving health insurance reform in America. Now the United States Senate must follow suit and pass its version of the legislation. I am absolutely confident it will, and I look forward to signing comprehensive health insurance reform into law by the end of the year,” Obama said in a statement.
Still, despite the bill's passage, not all Democrats who voted for the legislation were sold that it is the best set of policies that Congress can produce.
Rep. Jim Cooper (D-Tenn.) said he voted for the legislation simply to move the process along, despite him considering “much of the bill to be deeply flawed.” Cooper, a member of the anti-deficit Blue Dog Democrats, said Senate delay “would be the worst possible outcome because our current health care system is not sustainable.”
Tax Increases Help Offset Cost.
To raise $460.5 billion over the course of the 2011-19 period, Democrats included a 5.4 percent surtax on modified adjusted gross income in excess of $1 million for married taxpayers filing a joint return, and $500,000 for single filers. The surtax is not indexed for inflation.
Republicans pounded Democrats for taxing the wealthy, but also spent much time talking about what they said would be the negative impact on jobs of punitive measures for the failure of employers to satisfy requirements known as the “play or pay” mandate.
The measure includes an option for employers to offer health coverage instead of being subject to a payroll tax. The Congressional Budget Office said the tax would raise $135 billion over 10 years.
Small businesses with an annual payroll of less than $500,000 would be exempt, and the payroll tax would phase in for employers with an annual payroll of $500,000 to $750,000, with the full 8 percent kicking in after $750,000.
Referring to the 10.2 percent unemployment rate for October and the employer mandate in the bill, Rep. Fred Upton (R-Mich.) asked his colleagues: “How does that decrease unemployment? It doesn't.”
The legislation also includes a tax credit equal to 50 percent of the amount paid by a small employer for employee health coverage. It also includes a 2.5 percent tax on the modified AGI of an individual who does not obtain “acceptable” health coverage, which the CBO said would generate $33 billion in revenue.
“This bill does not add to the deficit in the next 10 years or the 10 years thereafter,” said House Majority Leader Steny Hoyer (D-Md.). “It isn't a simple bill. It isn't a perfect bill. It's the right response in this time of economic insecurity.”
Rep. Fortney Pete Stark (D-Calif.) agreed, saying the “bill is not the bill many of us would have created on our own. That's the legislative process.”
Black Liquor Measure Rankles Some Members.
When President Obama signed into law an unemployment insurance extension (H.R. 3548) Nov. 6, Democrats needed a new offset in the health care bill to replace one included in the UI bill—a delay in the implementation of accounting procedures relating to the allocation of interest for multinational companies.
In its place, they included language that would disallow the prospective use of a new $1.01-per-gallon cellulosic biofuels producer tax credit by paper companies seeking to use a pulp by-product known as “black liquor” to fuel their plants. Democrats modified that provision late Nov. 6 to retain the underlying black liquor measure, but drop other reforms they were seeking. The provision would still raise $23.9 billion over 10 years, according to the Joint Committee on Taxation (JCX-53-09).
But not all members are happy to see the provision in the legislation. It was scaled back due to the concerns of some members on the Agriculture Committee, who lack jurisdiction over the provision but still wanted time to review it.
Additionally, Rep. Bart Stupak (D-Mich.) said the leadership inserted the language “without talking to any of us. Some of us are a little cranked off about that.”
Rep. Cliff Stearns (R-Fla.) called the provision “unnecessary” and said that while he needs to reserve judgment on the provision overall, his big issue at this point is that it is a non-health care provision being used to pay for a health care bill.
“This bill is turning out to be a pork-barrel bill,” Stearns told BNA. “They're running around and saying to members ’what do we need to get your vote?’ ”
But a $61 billion Republican substitute that would have replaced the Democratic plan with one allowing for more flexibility in the way health savings accounts can be used and create incentives for participation in wellness and prevention programs failed in a 176- 258 vote.
The only amendment to be accepted to the bill was an amendment from Rep. Bart Stupak (D-Mich.) that would continue to ban the use of federal funds to pay for elective abortions. The Stupak amendment was adopted by a vote of 240-194.
FSAs, Health Savings Account Changes.
Beginning in 2011, reimbursements from health flexible savings arrangements, health reimbursement arrangements, and health savings accounts would be limited to prescription drugs and insulin, a change that would raise $5 billion over 10 years.
To raise another $13.3 billion, beginning in 2013, the legislation would place a $2,500 cap on employee contributions to health care FSAs. The limitation amount would be indexed to the consumer price index. Republicans argued that the two provisions would violate Obama's pledge not to raise taxes on families with incomes below $250,000.
The bill also would increase the penalty from withdrawing money from HSAs for nonmedical expenses from 10 percent to 20 percent, which would raise $1.3 billion over 10 years. The legislation also would eliminate the tax deduction for employers who receive a government subsidy for providing retiree prescription drug coverage under Medicare Part D, a change that would raise $3 billion over 10 years.
Several Non-Health Revenue Raisers in Bill.
The legislation would raise $6 billion to fully repeal a law that would eliminate double taxation for many multinational businesses. Another $20 billion would be raised under a new 2.5 percent tax on medical devices sold for use in the United States, while $17.1 billion would be raised through mandatory information reporting on payments made in the course of a trade or business to a corporation on payments made after Dec. 31, 2011.
The bill also would prohibit a strategy that foreign multinational companies in tax haven countries use to avoid tax on their U.S. income. The provision seeks to stop companies from using subsidiaries to channel deductible payments through U.S. tax treaty countries before earnings are repatriated to a tax haven. The change would raise an estimated $7.5 billion in revenue over 10 years.
To raise an additional $5.7 billion over 10 years, the legislation would codify the economic substance doctrine and impose penalties for underpayments. Large taxpayers would be held to a higher standard for penalty relief. Publicly traded companies required to file under Section 13 of the Securities and Exchange Act, and those earning more than $100 million in the taxable year involved, would be required to show a reasonable belief that their transactions would “more likely than not” satisfy the economic substance doctrine.
The legislation also contains one tax provision that would cost money over the budget window. Businesses that provide health coverage to domestic partners would gain the ability to deduct the value of those benefits from their taxes, just as the tax code allows them to do for employees and their dependents. JCT says the provision will cost the federal government an additional $4 billion over 10 years.
Democrats were particularly proud that passage of the legislation came on the third anniversary of the Election Day when they took over the majority of the House.
“It is appropriate that the New Direction that we promised them at the time and that we have worked on since then, will be manifested today in the passage of this important legislation,” said House Speaker Nancy Pelosi (D-Calif.).