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House plan boosts taxes on rich to 20-year high

(Agencies)
Updated: 2009-07-16 06:59

House Speaker Nancy Pelosi, D-Calif., from left, is joined by other House Democratic leaders, House Majority Leader Steny Hoyer of Maryland, Pete Stark of California, Henry Waxman of California, Charles Rangel of New York, and John Dingell of Michigan, in a news conference, announcing the introduction of health care legislation on Capitol Hill, Tuesday, July 14, 2009, in Washington. [Agencies]

WASHINGTON: House Democrats scrambling for ways to pay for overhauling health care would raise taxes on the wealthiest Americans to levels not seen since the 1980s, breaking one of President Barack Obama's campaign pledges.

The tax increase would be limited to the top 1.2 percent of earners — families that make more than $350,000 a year. But it would raise a total of $544 billion over the next decade, covering a little more than half the cost of the health care plan.

The bill unveiled by House Democratic leaders Tuesday would create three new tax brackets for high earners, with a top rate of 45 percent for families making more than $1 million. That would be the highest income tax rate since 1986, when the top rate was 50 percent.

The plan would honor Obama's campaign promise not to raise taxes on families making less than $250,000. But it would break an Obama pledge that no one — including the wealthy — would pay higher taxes than they did in the 1990s. The pledge, as listed on Obama's campaign website, was: "No family will pay higher tax rates than they would have paid in the 1990s."

Democrats argue that high-income families fared well under President George W. Bush's two terms as their taxes dropped and their incomes soared, giving them the ability to absorb higher taxes. Republicans argue that the tax increases would hurt small business owners who typically pay their business taxes on their individual returns.

Rep. Charles Rangel, chairman of tax-writing House Ways and Means Committee, called the plan "the moral thing to do."

"This innovative bill provides a uniquely American solution to control costs and put patients first without burdening future generations with debt," the New York Democrat said.

Obama's strategy throughout the health care debate has been to publicly encourage the efforts of congressional Democrats even as they debate proposals that would break his campaign promises. The goal is to keep lawmakers working toward a package that expands coverage and slows the growth in costs.

On Wednesday, Obama said that both the House bill and a separate measure passed by a Senate committee would "take what's best about our system today and make it the basis of our system tomorrow — reducing costs, raising quality, and ensuring fair treatment of consumers by the insurance industry."

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House Democratic leaders hope to pass the health care bill before Congress goes on vacation in August. Under the House plan, the federal government would be responsible for ensuring that all people, regardless of income or the state of their health, have access to an affordable insurance plan. Individuals and employers would have new obligations to get coverage, or face hefty penalties.

The bill would add a 5.4 percent income tax "surcharge" on families making more than $1 million a year, starting in 2011. Families making more than $350,000 would get a 1 percent tax and those making more than $500,000 would get a 1.5 percent tax.

If certain savings in the health care system are not achieved by 2013, the new tax on families making more than $350,000 would increase to 2 percent, and the tax on those making more than $500,000 would go to 3 percent.

Currently, the top marginal income tax rate is 35 percent. Obama wants to let some tax cuts enacted under Bush expire, boosting the top rate to 39.6 percent in 2011. The new health care taxes would increase the top rate to 45 percent.

House Republican leader John Boehner, R-Ohio, called the bill a job killer that would result in rationed care, fewer choices for patients and diminished quality.

"If this isn't bad enough, this new maze of government bureaucracy will be funded by a new small business tax that will cost more American jobs," Boehner said. "During a time of economic recession, the last thing Congress should be doing is punishing small businesses that create a majority of the jobs in this country."

Democrats argue that the tax increases would affect only 4.1 percent of tax filers who report small business income. Those small businesses, however tend to be the ones that employ the most workers, according to data from the National Federation of Independent Business.

The National Association of Manufacturers said the new taxes would make it harder for small businesses to grow, invest and create jobs.

"These new taxes will have longstanding negative consequences to the US economy and cost jobs," Jay Timmons, the association's executive vice president, wrote in a letter to members of Congress.