Lawmakers more open to idea of taxing benefits

Tribune Washington Bureau

WASHINGTON — Faced with mounting budget deficits and the enormous cost of reforming the nation’s health-care system, Democrats and Republicans on Capitol Hill are expressing increasing openness to an idea that once seemed unthinkable — putting taxes on some health-care benefits.

The idea of taxing medical insurance benefits has long worried many lawmakers concerned that new taxes could jeopardize the employer-based health system most Americans rely on. Even now, the idea is fiercely opposed by many in Congress and many in organized labor.

But House and Senate lawmakers, now crafting legislation to cover some 46 million uninsured people as part of a sweeping health overhaul, are viewing the taxes as something that could be part of a grand compromise, according to senior lawmakers and staff in both parties.

“Members of Congress are seriously looking at the way health insurance is handled for tax purposes,” House Energy and Commerce Committee chairman Henry Waxman, D-Calif., said this week. Waxman, a leading congressional liberal and ally of Speaker Nancy Pelosi, D-Calif., is helping to write health-reform legislation in the House.

Senate Finance Committee Chairman Max Baucus, D-Mont., who is drawing up legislation in that chamber, also said there is growing interest in examining whether all health benefits should be tax-free.

“People know we have to fund the system,” Baucus said in an interview, noting a change from the fall, when he suggested consideration of the tax break in his health-reform plan. “There are going to be trade-offs.”

So far, congressional leaders have been very guarded in their comments about taxing benefits and revealed no details publicly. But the discussions thus far have focused mainly on taxing high-income workers or those with expensive health packages.

American workers currently pay no taxes on the value of health benefits provided by their employers. For decades, that system — which also allows employers to deduct the value of the health benefits on their taxes — encouraged businesses to provide health insurance for their workers.