Bush Health Plan Would Raise Taxes by $526 Billion (Update1)

By Ryan J. Donmoyer

Feb. 28 (Bloomberg) -- President George W. Bush's plan to revamp the health-care system would increase taxes on Americans by $526.2 billion over the next decade, according to a congressional estimate that calls into question administration claims of cost and tax savings.

A ``very preliminary'' unreleased report by the staff of the non-partisan congressional Joint Committee on Taxation estimates that Bush's proposal would begin imposing higher taxes by 2011. Bush's plan, outlined in January, would replace incentives for employers to provide insurance for their workers with a tax deduction for individuals.

The estimate, which covers the next 10 years, suggests health-care costs may not fall under the White House plan. The Bush administration said the change would reduce health-care costs by making Americans smarter consumers and encouraging insurers to compete for individuals' business.

``It sounds like they're assuming health-care costs are going to go up quite rapidly, and therefore the effective deduction is buying less and less health insurance over time,'' William Gale, a senior fellow at the Brookings Institution, said of report's findings, after they were described to him. He said he hadn't seen the congressional report.

Bush's proposal in its first few years would provide a tax cut, as people took advantage of new deductions for health care of up to $15,000 a year for families, according to the Feb. 26 congressional study. By 2011 the plan would begin to take in more revenue than the deductions returned to taxpayers, resulting in a net tax increase of $526.2 billion through 2017, the study showed.

Bush Plan

Bush said in January that his plan would drive down health- care costs by providing most people with tax breaks for health insurance while raising taxes for those with the most expensive employer-sponsored benefits.

Employer-provided health insurance coverage currently isn't taxable. Bush's plan would cap that benefit, require Americans to pay taxes on employer-provided coverage with a value above $7,500 for individuals and $15,000 for families, and create tax deductions for those who buy their own insurance.

``Part of the role of government is to help people make decisions that hold the cost of health care down,'' Bush said during an appearance at a medical center in Lee's Summit, Missouri, on Jan. 25.

The Treasury Department said last month that the health tax- overhaul proposal would reduce taxes by a net $32.7 billion over the next decade because of the tax deductions it would create.

`Revenue Neutral'

Jennifer Zuccarelli, a spokeswoman at the Treasury Department, said she hadn't seen the report. ``Of course, we would want to work with Congress to ensure the policy is revenue neutral,'' she said in an e-mailed statement.

Thomas Barthold, acting chief of staff for the Joint Committee on Taxation, declined to comment on the congressional report.

The $7,500 and $15,000 deductions aren't indexed for the rise in health-care costs, which have been increasing 2.5 percent to 3 percent faster than the consumer price index. Even the administration estimates Americans will eventually face higher taxes on the difference between the value of their employer- provided health insurance and the deductions.

Treasury Estimate

The Treasury Department estimates Americans will save $35.5 billion in taxes under Bush's proposal in 2011. The congressional report estimates Americans would face a $13.7 billion tax increase that year. In 2017, the last year for which there are projections, the Treasury Department estimates Americans will pay $53.8 billion in additional taxes. The Joint Committee on Taxation staff puts the number at almost three times as much -- $148.7 billion.

The Feb. 26 congressional report says the tax bite will occur sooner rather than later and grow rapidly between 2011 and 2017.

``The president's health-care proposal was designed to be revenue neutral over a ten year budget window,'' Zuccarelli said. ``This was accomplished by choosing the standard deduction amount and indexing'' to the consumer price index, she said.

Former Republican Representative Pat Toomey of Pennsylvania, president of the Washington-based Club for Growth, which has supported the president's proposal, said in an interview that it would be ``problematic'' if the joint committee's estimate is accurate.

Toomey said if that's the case, Congress should consider indexing the deduction for inflation associated with health care rather than the consumer price index. ``That might solve the problem,'' he said.

To contact the reporter on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net

Last Updated: February 28, 2007 12:09 EST

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