U.S. Tax: U.S. Senate moving closer to floor action on health reform

As Congress returns from its Veterans Day recess, the health-care focus shifts to the Senate, where Majority Leader Harry Reid, D-Nev., has indicated that action on a bill may begin as early as November 16, and Democratic aides have suggested that a payroll tax increase for high-income individuals could be added to the mix of revenue offsets.

Although Senate leaders continue to wait for a revenue score from the Congressional Budget Office on a "merged" bill that combines provisions approved by the Finance Committee and the Health, Education, Labor, and Pensions (HELP) Committee, Reid reiterated on November 11 his goal of completing floor action by the Christmas recess, but recognized that a final vote on a House-Senate conference package may not take place before early next year. For his part, Majority Whip Richard Durbin, D-Ill., all but conceded final passage of a conference report would likely fall after the Christmas recess, given the limited time left on the legislative calendar. (The Senate will be out of session the week of November 23 for the Thanksgiving recess.)

In a procedural move, Reid has placed the bill that the House approved earlier this month on the Senate calendar, and a cloture vote to strip out the House provisions and replace them with Senate language could take place by November 20. Notably, Reid suggested he will not hold a cloture vote unless he is certain he has the required 60 votes.

While specific details of the new Senate plan are scarce, Reid is said to be considering a payroll tax on income in excess of $200,000 for singles and $250,000 for married couples. According to press reports, the provision would call for a 0.4 or 0.5 percentage point increase on Medicare wages. Under current law, the FICA portion of payroll tax is applied on the first $106,800 of income, while the Medicare portion applies to all wages. The increase would raise a reported $40-50 billion and could give Senate negotiators an opportunity to adjust existing revenue options that were approved by the Finance Committee on October 13 – for example, by raising thresholds on the 40 percent excise tax levied on so-called "Cadillac" health plans. (Some senators have complained that under the thresholds in the Finance Committee bill – generally $8,000 for individual coverage and $21,000 for family coverage – the excise tax would adversely affect middle-income taxpayers.) A variation on this proposal that is rumored to be under consideration would expand a portion of the Medicare tax to unearned income such as capital gains and dividends.

President Obama floated a proposal during the presidential campaign to reinstate a payroll tax for income over $250,000, but pledged that it would not be implemented for 10 years and that the revenue would be used for shoring up the Social Security system.

The inclusion of the new revenue raiser may also be an indication that the merged bill requires additional revenue to offset the cost of a rumored public plan option. A public plan was not included in the Finance Committee draft, but is part of the bill reported by the HELP Committee this summer.

In addition to the excise tax on Cadillac plans, the $381.3 billion revenue package approved by the Finance Committee includes a limit on executive compensation for health insurance providers, a corporate information reporting provision, new fees targeting health-related industries, and new requirements for nonprofit hospitals.

The Finance bill required considerably less revenue than the House-passed legislation, chiefly due to the absence of a public option. As approved, the House bill includes $560.5 billion in revenue offsets, most notably a surtax on high-income individuals, as well as provisions to codify the economic substance doctrine, limit treaty benefits for deductible related-party payments, impose an excise tax on medical device manufacturers, place restrictions on certain health-related employee savings plans, make "black liquor" ineligible for the cellulosic biofuel credit, and repeal the worldwide interest allocation election.

Reid has also indicated that the use of budget reconciliation remains an option should Republicans mount a filibuster. Reconciliation procedures would allow the Senate to limit debate and pass legislation with a simple majority. However, the Byrd Rule, named after Sen. Robert Byrd, D-W.Va., requires that all provisions in a reconciliation measure affect revenue.

That limitation could prevent Reid from including provisions that are strictly related to health-care policy.


Baucus pledges Finance climate-change markup; timing uncertain

In other developments, Finance Committee Chairman Max Baucus, D-Mont., stated at a November 10 committee hearing examining the impact of climate-change legislation on the U.S. job market that Senate taxwriters would hold additional hearings and a markup on a climate-change bill; but he would not say definitively if a committee markup is possible this year.

Baucus was the lone Democrat to vote against a cap-and-trade program (S. 1733) that the Senate Environment and Public Works Committee approved on November 5. The bill calls for a 20 percent reduction in greenhouse gas emissions from 2005 levels by 2020.

Specifically, Baucus has indicated recently that his committee may consider how to allocate free emissions allowances. Baucus also would like to examine the issue of border adjustments in order to protect domestic industries from competitors in countries without greenhouse gas regulation. Currently, the Senate legislation includes placeholder language calling for "a trade title that will include a border measure that is consistent with our international obligations and designed to work in conjunction with provisions that allocate allowances to energy-intensive and trade-exposed industries."

Baucus's counterpart in the House, Ways and Means Committee Chairman Charles Rangel, D-N.Y., passed on considering a tax component for the House climate-change legislation (H.R. 2454) that was approved in that chamber on June 26.