It is interesting, and perhaps worth noting, that while political opposition seems to be hardening against the $1 trillion, ten-year cost of the early versions of health reform, barely a peep of concern has been raised about the $3 trillion price tag for President Obama’s plan to extend most of the Bush-era tax cuts.

I’ve been struggling to understand the overheated rhetoric surrounding the proposal that allows Medicare to pay for end-of-life counseling. I think I get it now: It is all about the death tax.
Here is the story the government doesn’t want you to know. The 2001 Bush tax cuts will repeal the estate tax next year, but only for a year. Starting in less than 18 months, estates in excess of $1 million will once again be taxed at a stiff 55 percent. This will cost the children of the very wealthy tens of billions of not-so-hard-earned dollars. And it creates a huge incentive for these offspring to, shall we say, accelerate nature’s course. You see where I'm going here.

As Congress and the administration grope their way toward healthcare reform, a major obstacle is financing: how do we pay the $1 trillion cost over the next decade? Many economists and members of Congress favor reducing or eliminating the tax exclusion of premiums paid for employment-based health insurance (ESI). We owe no income or payroll tax on the premiums our employers pay. The exclusion will cut an estimated $240 billion from federal revenues next year and $3.5 trillion over ten years. And it hits state tax collections too.

Imagine you are a successful business owner confronting the House Democrats’ proposed tax rate hike. Your first question: How do I shelter as much of my income as possible? Will one answer be to buy the richest, most generous health insurance policy you can find?
It only makes sense. Why take cash compensation that could face a top rate of more than 45 percent when you could easily get more tax-free health insurance? Forget Cadillac plans. Now we’re talking Lamborghini coverage.

Now we know how many American taxpayers will be asked to pay for health reform under the new tax rate structure being designed by House Democrats: about 2 million. That would be a bit more than 1 percent of all taxpayers. They’d be asked to pay an additional $540 billion in taxes over the next 10 years, while those making less than $350,000 would be asked to contribute approximately nothing. Seems fair to me.
According to the draft House bill, starting in 2011 those making more than $1 million would pay a surcharge of 5.4 percent. Add that to President Obama’s plan to restore the pre-Bush top rate of 39.6 percent and the new maximum marginal rate would be an even 45 percent. You can also add a couple of extra percentage points thanks to Obama’s plan to restore the pre-Bush limits on personal exemptions (PEP) and itemized deductions (Pease).

A few thoughts on the House Democrats’ still-evolving plan to pay for close to half of health reform by raising marginal rates on the highest earning taxpayers:
*By allowing the Bush tax cuts to expire, restoring the phase-outs of the personal exemption (PEP) and itemized deductions (Pease), and now by proposing a ‘surcharge” of 2 percent or more, Democrats would be boosting the top individual tax rate from the Bush-era 35 percent to nearly 45 percent, ever-closer to the 50 percent top rate of 1985.

The American public is deeply divided over whether to raise taxes to pay for health reform. A fascinating Kaiser Family Foundation review of recent survey data finds that in five polls taken over the past four months, about half of those questioned said they’d be willing to pay higher taxes as the price of reform.
However, the amount of tax they are willing to pay appears to be low, they’d much prefer someone else pay, and they don’t like the idea of taxing employer-sponsored insurance one bit. Most striking, a dispiriting 60 percent think the system can be fixed without spending any more money at all—an outcome that no health economist I know thinks is remotely possible.

What if we helped pay for health reform by raising the floor on deductible medical expenses from 7.5 percent of adjusted gross income to 10 percent? That, at least, is an idea leaked to The Wall Street Journal earlier this week by the Senate Finance Committee
The move, which TPC figures would raise about $23 billon over 10 years–about 2 percent of the likely cost of health reform–would lift the floor that was set back in 1986. To get a sense of what it would mean, I asked TPC’s Jeff Rohaly and Rachel Johnson to run some quick numbers.

Note to critics of the public plan option for health insurance: This debate is over. You lost. In 2007, more than 45 percent of all medical costs in the U.S. were paid by government, vastly more than the one-third funded by private insurance.
Many Americans already have access to public coverage. There is Medicare for those over 65, Medicaid for the poor, SCHIP for kids, coverage for the active military, and for many veterans. Together, the share of medical spending paid by government has grown from one-third in 1970 to nearly half today, according to the Current Population Survey. If your definition of “public plan” includes insurance available through highly-regulated private carriers to federal, state, and local employees, the numbers are even bigger. And, of course, there is the quarter-trillion dollar government tax subsidy for health insurance.

Senate Finance Committee Chairman Max Baucus (D-MT) is floating the following trial balloon: Congress would fund part of health reform with a cap on the tax exclusion of employer-sponsored health insurance but only at a level “significantly above” the cost of the standard plan offered to federal employees. The measure would also exclude policies bargained under current union contracts. In a bit of unsenatorial understatement, Baucus told reporters on Tuesday that this version of the cap “wouldn’t affect very many people.” Or, he might have added, raise very much money.