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Dollars for Dollars

Via Martin Vaughan and Laura Meckler at the Wall Street Journal, House and Senate negotiators may decide to expand the Medicare payroll tax, so that it includes investment income. Why is this important? Because it helps answer the question of how we'll pay for health reform, which--at the moment--is the number one sticking point between the House and Senate.

Remember, the House would pay for expanded health coverage in part through higher income taxes. The Senate has rejected that approach, opting instead to tax the most expensive health benefits and to raise the existing Medicare payroll tax, which applies only to wages, for wealthy Americans.

One reason the Senate has gone this route is that some members consider it important that money for health care come entirely from "within" the health care economy. Both the benefits tax and the Medicare tax fit that category. Presumably, expanding the Medicare tax would too.

(For more detail on this idea--and the funding issue in general--see this Treatment item from last week.)

As Ezra Klein notes, when Senator Debbie Stabenow introduced this idea earlier in the debate, projections suggested it could raise $100 billion over ten years. That's significant money--enough to improve the benefits reform might provide or, perhaps, introduce changes a bit earlier than 2014.

But all of this happens as the labor movement is pressuring the administration to scale back the benefits tax. If congressional negotiators end up agreeing on this tax but use it, one-for-one, to replace revenue now being raised by the benefit tax, the bill's total spending won't change at all. And that would mean no improvements to affordability or timing--unless, of course, the negotiators can find money someplace else.

Follow Jonathan Cohn on Twitter: @jcohntnr