Tax Analysts Blog

To Fund Healthcare "Other" Proposals are More Likely Than Rate Hikes

Posted on Jul 15, 2009

The $544 billion tax rate hike on high-income taxpayers proposed by Rangel & Co. won't be part of any healthcare bill that passes this Congress. Think of the move as an opening bid in a long negotiation. Conservative House Democrats will never stick their heads out to vote for rate hikes unless they have assurances the Senate follows through -- and that, the upper body will never do.

Understandably public attention now is focused on the rate increases and, to a lesser extent, the proposed new tax -- equal to a whopping 8 percent of payroll and estimated to raise $145 billion -- for all but the smallest businesses that don't offer healthcare. But when -- and if -- a healthcare reform bill gets close to final passage, the other, smaller, less controversial tax hikes in the House proposal are much more likely to be part of the package.

The first of these "other" revenue sources is healthcare related: a tax on individuals who do not purchase healthcare is expected to raise $29 billion. The remaining $37 billion fall under the category of what the Obama Treasury would could call corporate "loophole closers." These include: codification of the "economic substance" doctrine to fight tax shelters ($3.6 billion), further delay in already approved interest allocation rules that would increase foreign tax credits ($25.1 billion), and tightening requirements on corporations seeking withholding tax relief ($7.5 billion).

Deficit hawks and bond market vigilantes please note: If these latter provisions are included in a revenue-neutral healthcare bill, that will be $37 billion less of relatively easy money available for long-term deficit reduction.

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