The American Medical Association announced it will lobby against including a public insurance plan as a default option in the health care reform legislation, according to the New York Times. When push came to shove, the doctors stood with the companies that absorb an inordinate amount of their time filling out forms. From their statement: 

The introduction of a new public plan threatens to restrict patient choice by driving out private insurers, which currently provide coverage for nearly 70 percent of Americans. 

While House Speaker Nancy Pelosi said the House bill will definitely include that option, and Senate Democrats are under intense political pressure from organized labor and progressive groups to follow suit, activist pressure has lined up only half the Democrats to sign onto the program in the upper chamber. 

The political landscape is becoming clearer. Key constituencies with huge financial interests in the shape of the health care system (Organized Medicine, the insurance industry) are willing to walk away from the table if their key demands aren't met. Meanwhile, those whose key concern is insuring the uninsured (Families USA, many consumer groups, most liberals in Congress) are willing to sacrifice any part of the reform package that stands in the way of getting at least that much done.

Its not hard to figure out who will has the upper hand when one side fights with its most powerful weapon -- a willingness to walk away from the process -- off the table.

As cost control fades as a significant option, most of  the onus of raising $1 trillion over the next ten years to finance an entitlement expansion will fall to the tax side. Jonathan Gruber, the Massachusetts Institute of Technology economist who was a chief architect of that state's health care reform plan, in todays New England Journal of Medicine published a renewed defense of eliminating the income tax exclusion for health benefits, which could raise half the necessary total. He called it a "win-win" proposition. Here's his description of win-win:

I prefer to view this as a progressive tax increase, with 62% of the revenues raised from families with annual incomes of more than $100,000. Yet there would still be a sizeable increase in taxation for middle-income families, with 10% of revenues coming from families with annual incomes below $50,000 and 28% from those with annual incomes of $50,000 to $100,000. For this reason, and because not all the revenues to be gained by removing the exclusion would be needed to finance reform, we should reduce, rather than remove, the exclusion.

Here's my two cents. If Democrats go down the path of taxing the middle class, they risk losing control of Congress. Do the Democratic moderates have any evidence that Republicans will sign onto this tax increase? Even from a purely economic point of view, does it make sense to raise taxes on the middle class in the midst of the worst economic downturn since the Great Depression?

There is one precedent where entitlement "reform" undertaken during a steep recession led to higher taxes on workers. In 1983, the Greenspan commission recommended a combination of payroll tax increases and benefit cuts to save Social Security for the Baby Boom generation. It was enacted the following year. In the succeeding quarter century, the government used every penny of that additional revenue to finance its deficits, sticking IOUs in Al Gore's infamous lockbox while giving huge tax breaks to large corporations and the upper classes. 

Perhaps they can get away with it again. But any Democratic moderate from a swing district who signed onto such a bill without the Republican leadership in both chambers standing at their side and at least half the Republican votes would be jeopardizing their political careers.