Congress Debates Medicare Payroll Tax

Lawmakers on Capitol Hill are still looking for ways to pay for the health bill. Democrats are considering a proposal to extend the Medicare payroll tax to dividend and investment income.

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You know, it would be a mistake to think that the health overhaul bill is all about health insurance. It is about health insurance, but it also has a lot to do with money, specifically how to pay for the new benefits the bill would provide. NPR's Julie Rovner has this report on one new possibility.

JULIE ROVNER: So far, it's still little more than a trial balloon, but the newest idea for a way to help pay for the health bill is to extend the Medicare payroll tax to investment income as well, at least for people with high incomes. Medicare expert Marilyn Moon says that would represent a big change in how we pay for Medicare.

MARILYN MOON: Because the whole philosophy of using payroll as the basis has been that it's related to your contributions as a worker.

ROVNER: Moon says she understands why such attacks on investment income might be attractive to lawmakers right now, as they near the end of the legislative process on the health bill.

MOON: Everybody's scrambling, looking for a new solution to the challenges of the fact that there is no good tax that will make everybody happy.

ROVNER: But she worries about the potential ramifications.

MOON: When you add something new out of left field, there's always the concern that it hasn't been carefully vetted and people haven't thought through all the implications and the potential unintended consequences.

ROVNER: Budget watcher Stan Collender, however, takes just the opposite view.

STAN COLLENDER: Sometimes the best ideas in legislative fights come out after, you know, long, drawn-out debates, and, you know, looking for a compromise and suddenly someone comes up with something that, you know, no one thought of before, but just makes a great deal of sense. It's the legislative version of the, you know, necessity is the mother of invention.

ROVNER: Collender, a former Capitol Hill tax and budget aid, says that while some people may complain about taxing investments, that may be the only logical thing to do in the current economic climate.

COLLENDER: Let's think about since March, the stock market's up 65 percent or so, but unemployment is up to 10 percent. Under those circumstances, you would think that investments could bare a little bit more tax, whereas employment could not.

ROVNER: And whether or not this particular tax makes it into the final bill, Collender won't be surprised to see lots of new financing ideas cropping up. That's because the old way of funding legislation through budget cutting and taxing traditional income, he says...

COLLENDER: Just won't fly anymore. We know that they're politically unacceptable. So new ideas, things that haven't dared been mentioned before or just innovative ideas that have never come up before are likely to be much more likely in the future than anything that we've seen in the past.

ROVNER: In the near future, however, House and Senate negotiators are going to have to find a way to pay for a nearly trillion- dollar health care bill that will satisfy 60 Senators and 218 House members, not to mention a public growing more skeptical by the day. So far, it hasn't been easy.

Julie Rovner, NPR News, Washington.

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