Governor's Jobs Tax Needs "Act of Congress"

Plan faces high legal hurdle, has "no support" in the Legislature

While it would take an "act of Congress" for the Governor's proposed "Fair Share Tax" to avoid a legal challenge, the issue may be moot since the plan seems to have no support in the Legislature.

"I haven't met a single legislator who is going to vote for this tax. We need to dispose of it and move on," said Senator Jake Corman, Senate Republican Policy Committee Chairman, during a joint public hearing on Tuesday (April 24) by the Senate Banking and Insurance Committee and the Senate Finance Committee to hear testimony on the legality and practicality of Governor Rendell's proposed tax on employers to support his universal health care plan.

The committees heard testimony from a national expert regarding a recent case involving a mandated health benefits program in Maryland. In January 2007, the U.S. Court of Appeals for the Fourth Circuit affirmed a decision that invalidated Maryland's program citing that it clashed with the Employee Retirement Income Security Act of 1974 (ERISA).

Todd Anderson, Outside General Counsel for Retail Industry Leaders Association (RILA) said the Fourth Circuit Court's decision would directly apply to Governor Rendell's tax proposal as it is written in Section 7203 of House Bill 700.

"This judicial ruling makes it clear that employer health plans are governed by federal law, not a patchwork of state and local laws," Anderson said. "RILA believes the Fourth Circuits' decision sends a strong message that bills containing 'fair share' provisions that are under consideration in other states, such as HB 700, are also pre-empted by ERISA."

In response to a question from Banking and Insurance Committee Chairman Senator Don White, Anderson said that literally an "act of Congress" addressing ERISA would be required in order for Gov. Rendell's so-called "Fair Share Tax" to pass legal muster.

Rosemarie Greco, Director of the Governor's Office of Health Care Reform said the tax, which is projected to cost Pennsylvania employers $317 million annually by year five, was different from Maryland's plan because it would not consider the amount companies spend on health care.

"It is a straight-forward tax on employers," she said. "The Maryland law specifically required employers to spend 8 percent of payroll on health benefits or pay the difference to the state. Our proposal imposes a 3 percent tax on employers. Period."

Senator Jane Earll told Greco that she took umbrage with the Director's testimony which insinuated that the legislators were simply out to sabotage HB 700. "I believe we have some serious concerns and I believe we have a responsibility to listen to these legal opinions," Senator Earll said.

The fact that the Administration hasn't completed legal reviews of the tax, nor addressed solvency questions about the universal health care plan raised a number of concerns from Senators at the hearing.

Senator White said that since the Maryland case was on-going since last year, he was incredulous that the Administration had not completed its legal review regarding the tax and ERISA.

"If this was a serious proposal, wouldn't it have been appropriate to seek the expertise of outside counsel before you rolled it out?" Senator Corman asked Greco.

Finance Committee Chairman Pat Browne echoed those sentiments, adding that the legal review should also extend to the Uniformity Clause of the Pennsylvania Constitution, which states that taxes can't be imposed for "populist" reasons.

"In form, we are trying to structure something that avoids ERISA, but in substance, that is impossible," said Senator Browne.

Senator White and Senator Pat Vance questioned the fiscal aspects of the Governor's proposal.

"When Governor Rendell proposed the Fair Share Tax, it was billed as a 3 percent tax on an employer's payroll that does not offer employees 'acceptable' health care coverage," A few weeks later, the Legislature learned the plan actually calls for the tax to be increased by approximately 16 percent after the third year and all employers will be assessed the tax and be burdened with the need to seek a refund if their coverage is deemed 'adequate'," Senator White said.

Senator Vance also questioned the ambiguity of the language regarding what the Administration regarded as "qualified" health care.

"How can an employer determine if they are subject to the tax if the language of qualified health care is undefined," Senator Vance said. She also raised serious concerns about projections that show that even with the proposed tax and its increase from 3 percent to 3.5 percent the Governor's universal health care plan is expected to be under-funded in the future.

"How can we consider a program that is insolvent from the start?"

Contact:
Joe Pittman (Senator White)
(717) 787-8724

Stacey Connors (Senator Browne)
(717) 787-1349