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Obama's Looming Health Care Disaster: Looking for Love in All the Wrong Places

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"For the first time in American history, he wants to tax your health benefits. Apparently, Senator McCain doesn't think it's enough that your health premiums have doubled. He thinks you should have to pay taxes on them, too." -- Barack Obama, September, 2008

American working people desperately want President Obama to succeed. They certainly do not expect him to break his word on taxing worker health benefits. It's one thing to break a promise. It's quite another to increase taxes dramatically on the very people who most believed in your words, while at the same time letting the wealthy off the hook.

I've come across increasing disillusionment among workers like those at Verizon. They supported Obama in large part because they wanted to protect their excellent health care benefits, something they are very proud of. They should be. They have the kind of plan everyone should have -- full coverage, low deductibles, dental, prescription drugs, and mental health coverage. Their middle-class lives are not economically threatened by illnesses or accidents.

These benefits did not fall from the sky or from the generosity of their employer. Verizon workers won these benefits by uniting with each other and with their union, the Communications Workers of America. They fought a series of strikes over the past three decades (with Verizon and with the companies that preceded it) to secure their benefits and to hang onto them against stiff company assaults. They have no intention of giving them up.

These workers also provided rock solid support for Obama, including his call for health care reform so that all working people one day could enjoy similar coverage. In fact, for these workers one of the key distinguishing points between Obama and McCain centered on the taxing of health care benefits. They felt enormously threatened by McCain's health tax proposals, especially since the cost of many of their excellent plans can exceed $20,000 a year per active member and even more for retirees and their families. Counting those benefits as taxable income would amount to an enormous tax increase for these workers, and their union made sure they understood this point during the campaign. In fact, labor unions all over the country distributed millions of pieces of campaign literature and made tens of thousands of phone calls to drive this point home.

Now these workers are hearing that Obama is open to a tax on these benefits to help pay for health care reform. The very mention of this tax has already weakened support from these workers and sapped their enthusiasm to fight back against Obama's opponents.

Yet, team Obama led by Rahm Emanuel seems incredibly out of touch with this reality. In their desperate effort to find revenues for their national health care proposals, they are "pivoting" as they signal a willingness to consider taxes on the better, more expensive health insurance benefits. If the administration continues down that path, Obama will lose these workers, now and forever. They probably won't vote for the Republicans in the mid-term elections, but they might sit it out or fail to campaign vigorously for Democrats.

Because the administration has put its entire reputation on the line to get this bill passed, a version of this tax might slip in. And if it does, you wouldn't be paranoid to view it as a poison pill ploy by Republicans to undermine Obama for the rest of his presidency.

These workers have an intuitive understanding that they are being asked to pay precisely because Obama seems unable to tackle the wealthy and their Blue Dog Democratic defenders. These Democrats don't want to stop the sky-high salaries on Wall Street or to interfere with its windfall profits, even after these same profiteers crashed the system. Working people clearly see that we have bailed out Wall Street with more money than it will take to fund health care over the next ten years. Yet, the administration is unwilling to tap the wealthy to pay for it, even when there are several ways to do so. If Obama wants health care reform while maintaining the support of his staunchest working class supporters, he should consider the following:

1. Increases taxes on those who have adjustable gross incomes of over $1 million a year. According to 2007 tax documents, there were about 400,000 such returns. They paid an average of 22 percent of the gross adjustable income in taxes. If we put a 10 percent health-care surcharge on these wealthy taxpayers, (raising the effective rate to 32 percent) we would collect an additional $140 billion per year. And not one of these taxpayers would suffer any hardship since they would still be extremely rich by any reasonable standard. Also, it would be more than fair since most of these millionaires made a killing during the fantasy finance bubble and are making money again because we bailed out the financial sector.

2. Place a 90 percent windfall tax on Wall Street profits and bonuses. Profits are returning to the "too big to fail" firms, starting with Goldman Sachs and JP Morgan Chase. They are making money again because we bailed out the entire financial sector, guaranteed toxic assets, provided liquidity free of charge, changed the accounting standards, and got them repaid from AIG at par value. If people like Andrew J. Hall are permitted to receive $100 million in bonus payments from CitiGroup, a bank we basically own, then 90 percent should be taxed back to us. These firms and their stars owe us, big time. No worker will be able to understand why his or her health care is being taxed while the elites on Wall Street walk off with tens of millions in taxpayer dollars.

3. Install a very small tax on each and every financial transaction on Wall Street. Everyone else in America pays some kind of sales tax on their purchases, why not Wall Street? This kind of fee would generate at least $50 billion a year. This would also have the important benefits of stabilizing the economy in the long term, reducing the risk of future bursting bubbles, by slowing down speculation as well as moving money out of the bloated financial sector and into the real economy. (Of course this would need to be an international tax agreed upon by the G-20 nations to make sure countries don't game the tax.)

These three measures would generate more than enough revenue to pay for universal health care, while also generating enthusiastic support from the Verizon workers and the millions of others with decent health care benefits.

Like a good basketball player, President Obama knows how to pivot. Like a good politician he also should know when to pivot and in what direction. But if he pivots towards taxes on health care benefits, he'll find himself alone on the court with a bunch of blue dogs and bankers as teammates, while his working class fans walk away in disgust. Even more importantly, his real team needs to see him take on the big boys... and soon.

Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It, Chelsea Green Publishing, June 2009.