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House Democrats Aim to Tax the Rich

Taxing the rich may be popular with many Americans, but some experts warn that a proposed tax on the wealthy to pay for an overhaul of health care could be bad economic medicine.

House Democrats included a surtax on families making more than $350,000 in a sweeping health care bill unveiled Tuesday - the latest idea Congress is considering to pay for President Obama's broad goal to provide coverage to the nation's 50 million uninsured.

A majority of Americans, 58%, supported increasing income taxes on the wealthy to pay for health care, a USA TODAY/Gallup Poll found this week, but some experts say a less popular but broader tax tied to health care spending could be more sustainable over time.

"You have a health plan that's meant to benefit everybody but it's being paid for by only 2.1 million taxpayers," said Rosanne Altshuler, co-director of the non-partisan Tax Policy Center. "It's difficult to raise revenue this way."

The House legislation comes as Obama is ramping up pressure on lawmakers to act quickly on health care, his top domestic priority. The president is scheduled to make remarks about health care at the White House today.

Negotiations over separate versions of the legislation in the Senate and House have stalled in recent weeks as lawmakers sought ways to pay for the$1-trillion-plus cost . The most expensive provision: subsidies to help low-income people pay for premiums.

House Speaker Nancy Pelosi, D-Calif., said the bill will move quickly and reiterated that the House will vote on legislation before lawmakers return to their districts for the August recess. "Inaction is not an option for us," Pelosi said.

House Democrats said the tax would raise $544 billion over 10 years.

Under the House legislation, families earning between $350,000 and $500,000 would pay an additional 1% in income tax. The new tax would increase with higher salaries so that families earning more than $1 million would pay an additional 5.4%. The tax would apply to the top 1.2% of households in the USA, according to a House Ways and Means Committee document.

A separate proposal to pay for health care by taxing some benefits offered by employers - currently exempt from federal taxes - lost steam this month in the Senate because Democratic lawmakers, including Sen. Charles Schumer of New York, said it would have been too great a burden on middle-class families.

Joseph Thorndike, a historian with the Tax History Project, said broadening the tax base to more Americans - though it may be less politically popular - might be better policy. In part, a broader tax could be less easy to repeal in the future.

"If you ask people to pay something then they have an ownership stake in it," Thorndike said, citing Social Security as an example. "The narrow, soak-the-rich approach is real short-sighted politics."

Chuck Marr, director of federal tax policy for the Center on Budget and Policy Priorities, countered that high-income families have paid less in taxes over the past several years. He said the Senate's proposed tax on benefits and the House surtax on the wealthy are both realistic options.

"Given the income gains that those at the very top have enjoyed, and the tax cuts they have received over the last three decades," Marr said, "a surtax on those same people is a natural option."

Still, the idea has been criticized by some Democrats. Sen. Ron Wyden, D-Ore., said Tuesday that he has "not heard much support" from his colleagues.

Republicans in the House have been more blunt. "The taxes are onerous during a recession," said Rep. Dave Camp, R-Mich. "They're going to fall on families, small businesses, manufacturers - and they're going to cost us millions of jobs."

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