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TAX NEWS - January 2010

Path for moving health care reform legislation remains unclear

Although House and Senate Democratic leaders continue to work behind closed doors on possible compromises to finish comprehensive health care legislation, both chambers remain undecided on how to move a final package through Congress and get it to the White House.

Both the House and Senate proposals contain significant tax changes. The House bill, which was approved November 7, raises $560 billion in taxes over 10 years. The largest piece of this - $461 billon - comes from a proposed 5.4 percent surtax on modified adjusted gross income (AGI) over $500,000 a year for individuals and modified AGI over $1 million for couples. In contrast, the Senate bill raises approximately $400 billion, chiefly through an excise tax on "Cadillac" insurance plans, specified industry fees, and an increase in the hospital insurance tax on high-income individuals.

House Speaker Nancy Pelosi, D-Calif., indicated on January 27 that she and fellow House leaders are exploring options to pass the Senate-approved bill along with a separate package of modifications that would be sent over to the Senate and moved through the budget reconciliation process. (Moving the modifications package under reconciliation means it would not be subject to filibuster in the Senate and would need only 51 votes to clear the chamber.)

House Democrats have sent an informal proposal to their Senate counterparts rumored to include roughly $300 billion in additional provisions and modifications to the Senate bill. One of the expected changes would either scale back or eliminate the excise tax on Cadillac plans.

But Pelosi's plan may run into trouble from a number of Senate Democrats who do not favor reconciliation as a means to complete the health reform legislation. Senate Majority Leader Harry Reid, D-Nev., reiterated January 28 that reconciliation is one method Congress may use to move comprehensive health care legislation. Should reconciliation prove too burdensome, the House has also indicated that it may consider moving smaller, piecemeal bills that avoid more controversial components of the existing legislation.

With the Senate indicating that it will pivot to a series of job-creation bills, health care reform may take a temporary back seat to broader economic concerns. While Reid commented that health reform would remain on the agenda, he made no specific timing commitment other than that the chamber would return to it "this year."

For his part, President Obama used his first official state of the union address to urge Congress to complete health care legislation, but offered no specific path forward to resolve existing differences between the House and Senate legislation.
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