Obama pivots on taxing health benefits

WASHINGTON — President Obama, in a pivot from a campaign promise, told Democratic senators Tuesday that he is willing to consider taxing employer-sponsored health benefits to help pay for a broad expansion of coverage.

Senate Finance Committee Chairman Max Baucus, D-Mont., said Obama expressed a willingness to consider changing the existing tax exclusion. The decision probably would anger liberal supporters such as labor unions, but such a tax change would raise enormous sums of money as Congress and the White House struggle to find the estimated $1.2 trillion needed to pay for an overhaul of health care over the next decade.

"Yeah, it's something that he might consider," Baucus said after the meeting between Obama and Democratic lawmakers. "That was discussed. It's on the table."

Obama had summoned about two dozen senators to the White House to keep up the pressure to enact a comprehensive health-care overhaul this year. White House officials moved quickly to clarify that taxing the health insurance provided by businesses is not Obama's first choice, but aides refused to rule out the possibility.

"The president made it clear during the campaign that he has serious concerns about taxing health-care benefits, and he has introduced his own revenue proposal, which he reiterated in today's meeting," spokesman Reid Cherlin said.

Obama instead urged senators to reconsider his proposal, which would increase revenue by reducing itemized deductions such as charitable contributions and mortgage payments for the wealthiest Americans, according to one adviser.

Obama included that idea in his budget, reporting it would raise $317 billion over 10 years, a sizable "down payment" on the cost of overhauling health care. But Congress immediately labeled the proposal a nonstarter.

Private-sector businesses spend about $518 billion a year on workers' health insurance, benefits that are not taxed. If workers paid such taxes, it would raise $246 billion each year, according to the congressional Joint Committee on Taxation.

Tax treatment of employer-sponsored health-care cuts across party lines: Prominent Republicans such as New Hampshire Sen. Judd Gregg support a tax on certain health plans, while Democrats such as Ohio Sen. Sherrod Brown say a tax would unfairly hurt middle-class workers with good benefits.

Health analysts from across the political spectrum have pressed for changing the tax treatment, arguing in part that the exclusion provides the greatest tax relief to high-salaried workers with generous insurance plans.

Last month, Baucus said he was eyeing a benefit cap. Experts have outlined two likely approaches: taxing benefits for workers above a certain income level; or taxing benefits exceeding a certain value, perhaps $14,000.

Nevertheless, the issue represents treacherous politics for Obama, given his attacks on Sen. John McCain, R-Ariz., who advocated a similar approach during the campaign.