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New House Health Care Plan Funded By Income Surtax, Medicare Cuts

Written by TaxFoundation.org

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Tax Foundation Report Breaks Down Financing of $1.05 Trillion House, $829 Billion Senate Health Care Reform Plans

Washington, DC, October 30 2009 - The $1.05 trillion House health care reform legislation unveiled by Speaker Nancy Pelosi yesterday is financed primarily through net cuts to Medicare (which would save $472.8 billion, or 39 percent of the bill's 10-year cost), and a 5.4 percent surtax on high-income individuals (which would generate $460.5 billion, or 38 percent of the bill's cost), according to the Tax Foundation's review of the Congressional Budget Office's (CBO) analysis.  

By comparison, nearly half of the $829 billion Senate Finance Committee plan is financed through Medicare cuts ($377.8 billion, or 41 percent of the bill's 10-year cost), and 22 percent would come from an excise tax on so-called "Cadillac" health insurance plans, which would raise an estimated $201.4 billion over 10 years. The House plan would reduce the deficit by $104 billion and the Senate version by $81 billion.  

"There are similarities and major differences between the House and Senate plans: Both rely on Medicare spending cuts, although the House plan would cut nearly $100 billion more, and both plans include one large new tax - a high-income surtax in the House version and a tax on high-value health insurance plans in the Senate version," said Tax Foundation Senior Economist Gerald Prante, who authored Tax Foundation Fiscal Fact No. 200, "Comparing Financing of the House and Senate Health Care Reform Plans."

The Fiscal Fact is available online on the Tax Foundations website here .   "Both the House and Senate proposals would impose a financial penalty on individuals if they do not buy health insurance, and both would force employers to pay a penalty to either the government or new 'health exchanges' if they do not provide a government-approved health insurance plan to employees," Prante said. "In both cases, the House penalty is higher."  

In the House plan, these "pay or play" provisions for employers make up the next largest percentage ($135 billion, or 11 percent) of the legislation's financing, followed by a tax on medical devices and other health care revenue increases ($55 billion, or 5 percent), corporate income tax increases and other non-health revenues ($50.4 billion, or 4 percent) and a penalty on uninsured individuals ($33 billion, or 3 percent).  

In the Senate Finance Committee plan, a tax on medical devices and other health care revenue increases make up the next largest financing percentage ($179.1 billion, or 20 percent), followed by corporate income tax increases and other non-health revenues ($100.1 billion, or 11 percent), net cuts to other health care spending ($26.3 billion, or 3 percent), "pay or play" provisions for employers ($23 billion, or 3 percent) and a penalty on uninsured individuals ($4 billion, or less than 1 percent).  

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The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.   To schedule an interview, please contact Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or This email address is being protected from spambots. You need JavaScript enabled to view it. .

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