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By Ryan J. Donmoyer and Kristin Jensen

July 15 (Bloomberg) — House Democrats plan to fund the broadest U.S. health-care expansion in four decades by increasing taxes on the wealthiest Americans, imposing a surtax of 5.4 percent on couples with more than $1 million in income.

The legislation unveiled yesterday would place additional taxes on households with more than $350,000 a year in income and calls for further increases if the measure doesn’t hit a target for cost savings. The provisions are intended to raise $544 billion over 10 years.

House leaders said the plan, which includes mandates to purchase coverage and a public health-insurance option, would cover 97 percent of Americans by 2019. President Barack Obama praised their work, saying it will “begin the process of fixing what’s broken” in the system.

“We can’t continue to put more and more money into health care,” said Representative Henry Waxman, a California Democrat who runs the House Energy and Commerce Committee. “We cannot go home for recess unless the House and the Senate pass bills to reform and restructure our health-care system.”

Obama, who has made health care his top priority, has called on both chambers to vote on their versions of the legislation before their August recess. Senator Kent Conrad, a North Dakota Democrat, says that goal may be impossible, and Richard Durbin, the Senate’s No. 2-ranking Democrat, has said the chamber is unlikely to back the surtax on high-income people, further clouding the legislation’s prospects.

1,018-Page Plan

The 1,018-page House Democratic plan builds on a June 19 draft and for the first time includes details on how to pay for the measure. In addition to the levy on millionaire households, the House would place surtaxes of 1.5 percent on couples with incomes of $500,000 to $1 million and 1 percent on those with incomes of more than $350,000.

In 2012, the White House budget office would review the estimated savings from the health-care overhaul. If the savings are $150 billion more than expected, then the government would scrap a planned second set of increases for those making between $350,000 and $1 million. If the extra savings top $175 billion, the surcharge for those incomes would be eliminated altogether.

The surtax on wealthier Americans would be imposed based on adjusted gross income, meaning it would also apply to capital gains and dividends, which are currently taxed at a 15 percent rate. House Ways and Means Committee Chairman Charles Rangel said lawmakers targeted high earners because it “causes the least amount of pain on the least amount of people.”

Corporate Taxes

The plan drew fire from the U.S. Chamber of Commerce, the nation’s biggest business lobby.

“The intention of this plan is to tax high-income households, but the real victims would be America’s small business owners,” the Washington-based group’s president, Thomas Donohue, said in a statement. “Since when does our great free-market country punish success?”

The legislation would raise taxes on larger corporations as well. Among other things, it would make it easier for the Internal Revenue Service to prosecute tax shelters, and deny certain cross-border deductions that some companies are able to claim through tax treaties.

The House is also proposing a mandate on Americans above a certain income level: People would be penalized as much as 2.5 percent of their income for failure to buy health insurance. Most employers would be required to insure their employees or pay a penalty equal to as much as 8 percent of their payroll.

Awaiting Cost Estimate

Lawmakers are waiting for the Congressional Budget Office to determine how much the bill will cost. The nonpartisan agency said in a partial and preliminary analysis today that the plan would run to more than $1 trillion over 10 years and reduce the number of uninsured by roughly 37 million. The agency said that by 2019 some 17 million people — about half of them illegal immigrants — would lack coverage.

Eventually, the House and Senate must craft a compromise measure, and conservative lawmakers in both chambers have balked at taxes outside the health-care system.

Senator Ben Nelson, a Nebraska Democrat, said he’s “not hearing a lot” of support for a surtax on wealthy Americans. People in his state don’t like the millionaire’s tax “because they are looking someday to get there themselves,” Nelson told reporters on July 13. “It’s the American way.”

Republicans also voiced their disapproval.

“The Democrats’ priorities for health-care reform are now clear: a government-run system financed on the backs of Americans and small businesses with higher taxes,” said Michael Steele, chairman of the Republican National Committee.

Leaning on Lawmakers

Stumbles in the effort to reduce health-care costs and expand coverage prompted Obama to summon top lawmakers to the White House on July 13 to prod them toward action. The Senate has so far failed to reach a bipartisan compromise, and top advisers to Obama are discussing the possibility of relying only on Democrats to ram the legislation through Congress.

“Ultimately, this is not about a process,” said David Axelrod, Obama’s senior political strategist, in an interview yesterday. “It’s about results.”

To contact the reporters on this story: Ryan Donmoyer in Washington at [email protected]; Kristin Jensen in Washington at [email protected]

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