White House open to new tax on health benefits

The Obama White House left open the possibility Sunday that the president would break a campaign promise and raise taxes on people earning less than $250,000 to support his health care overhaul agenda.

White House adviser David Axelrod said the administration wouldn't rule out taxing some employees' benefits to fund a health care agenda that has yet to take final form. The move would be a compromise with fellow Democrats, who are pushing the proposal as a way to pay for the massive undertaking without ballooning the federal deficit.

"There are a number of formulations and we'll wait and see. The important thing at this point is to keep the process moving, to keep people at the table, to the keep the discussions going," Axelrod said. "We've gotten a long way down the road and we want to finish that journey."

But if President Barack Obama compromises on that point, it would reverse a campaign tax promise.

"I pledge that under my plan, no one making less than $250,000 a year will see any type of tax increase," Obama told a crowd in Dover, N.H., last year. "Not income tax, not capital gains taxes, not any kind of tax."

At the time, his Republican rival, Sen. John McCain, R-Ariz., was proposing a tax on health benefits similar to the plan Obama is now considering. Just a year ago, Obama spent millions on campaign commercials attacking the idea.

One ad accused McCain of favoring "taxing health benefits for the first time ever ... taxing health care instead of fixing it. We can't afford John McCain."

A second Obama ad called McCain's approach "the largest middle-class tax increase in history." Driving the point home, it contended the "McCain tax could cost your family thousands. Can you afford it?"

Under the current proposals, a tax on health benefits would affect only those with pricey health plans. The idea would be to tax as income the portion of health benefits worth more than a specified limit. Officials are considering several options, including one that would set the limit at $17,240 for family coverage and $6,800 for individuals.

Plans worth more than that would be taxed; those worth less would see no increase.

Obama has faced similar criticism before. When he increased taxes on tobacco to pay for a children's health bill, his critics said he was raising taxes on those making less than $250,000 a year.

Obama left open the possibility of a tax during interviews last week, insisting he wasn't taking any option off the table despite his personal opposition. But two of his high-profile advisers - budget chief Peter Orszag and economic adviser Jason Furman - both have indicated they support some taxes on health benefits to pay for the overhaul.

Sen. Chuck Grassley, R-Iowa, said that Obama should step in an oppose the tax if he's truly against it. Otherwise, he faces a loss to his own Democratic Party and his own campaign credibility.

"I think it's going to take presidential leadership to get people of his party to see that we shouldn't be subsidizing high-end health insurance policies that drive up inflation in health insurance," said Grassley, the top Republican on the powerful finance committee.

Grassley - and, to be sure, other Republicans - remember Obama's scathing criticism of their GOP presidential nominee.

"Since the president denigrated John McCain's effort to move in this direction during the campaign, it's going to take, in order to win over Republicans, presidential leadership in that direction," Grassley said.

To help sell his plan, Obama scheduled a town hall-style meeting this week in Annandale, Va., a Washington suburb. He plans to take questions Wednesday from the audience and from online sites such as Facebook, YouTube and Twitter.

Axelrod insisted that the White House has made progress on a health care plan and is working with Congress. Even so, the emerging legislation is hardly the bipartisan collaboration Obama's top advisers had sought.

"One of the problems we've had in this town is that people draw lines in the sand and they stop talking to each other," Axelrod said. "And you don't get anything done. That's not the way the president approaches us."

Axelrod appeared on ABC's "This Week" and NBC's "Meet the Press." Grassley appeared on "This Week."