House leaders set to wrestle with taxes to pay for healthcare

House Speaker Nancy Pelosi and fellow House Democratic leaders next week are expected to wade into the treacherous waters of how to pay for the House healthcare bill as they continue to negotiate the shape of the bill behind closed doors.

Throughout September, House leaders held more than 60 hours worth of caucus meetings with rank and file Democrats. But many problematic issues remain unresolved, and so far they have not decided what taxes to raise, or whether to raise them at all.

The most public debate is about the "public option," as Pelosi tries to mediate a burgeoning feud between liberals and centrist Blue Dog Democrats about what form the government-run plan should take in the legislation.

But the tax question could be even more divisive within the Democratic Caucus, pitting union allies against business-minded centrists who believe that a tax-the-rich strategy will backfire by hitting small business.

Pelosi appears to have sparked a revolt among unions and a significant portion of the Democratic Caucus by suggesting last month after one of those closed-door meetings that she might be open to raising taxes on so-called "Cadillac" insurance plans.

Rep. Joe Courtney (D-Conn.) announced Friday he's collected more than 100 signatures on a letter to Pelosi asking her not to support the tax on health plans. The tax on benefits, he said, violates Obama's campaign pledge not to raise taxes on the middle class.

"It shifts the burden of who's really going to pay to those making below $250,000," Courtney said.

The tax is popular in the Senate, where the Senate Finance Committee has written a bill that would levy a 40 percent tax on insurers for plans worth more than $8,000 for individuals and $21,000 for families.

But organized labor despises the idea, since many union members have expensive insurance to cover dangerous professions or negotiated better benefits in lieu of higher wages.

None of the three versions of the healthcare bill passed by committees in July include the tax on benefits. Pelosi and most House leaders have long backed an income surtax on the wealthy to pay for the portion of the bill not funded by "squeezing the savings" out of the Medicare system.

But the surtax is unpopular among many business-minded New Democrats, centrist Blue Dogs and freshman facing their first re-election test next year.

As soon as the surtax plan was unveiled in July, Rep. Jared Polis (D-Colo.), a New Democrat from a wealthy district, led the charge against the tax. He circulated a letter with the signatures of 20 fellow freshman protesting the burden it would place on small businesses.

Pelosi then suggested raising the threshold for paying the tax to $500,000 for individuals and $1 million for families, up from lower thresholds proposed by the House Ways and Means Committee. Polis has praised Pelosi's decision, but hasn't committed to supporting the tax with higher thresholds.

More recently, Rep. Jason Altmire (D-Pa.), a member of the Blue Dog and New Democrat coalitions, collected 32 Democratic signatures in a letter making the case that a healthcare overhaul could be done with no tax increase whatsoever. Altmire says the cost of the health plan should be limited to the savings that can be found in Medicare.

But he said that from a policy perspective a tax on health plans makes more sense than an income-based tax because it serves the purpose of limiting healthcare costs.

"It has merit for being a healthcare-related pay-for," Altmire said.

Still, Altmire said he expects Democratic leaders to opt for the surtax. But it takes 39 Democrats voting against the bill to sink it in the face of united opposition. More than 39 Democrats signed either the Altmire or Polis letters, but neither letter contained a firm threat to vote down the bill.

House leaders hope to have the bill on the floor this month, but House Majority Leader Steny Hoyer (D-Md.) said it would not come up this week or next.