The Senate amendment, which Sen. Richard Burr (R-NC) was preparing to offer on behalf of a number of his colleagues, would have replaced the seriously-flawed tax preference for job-based health insurance with a universal refundable tax credit for individuals and families to purchase private coverage.

Not so fast, Grover warned, issuing a stern warning that he would consider the amendment to be a violation of ATR's no-tax-increase pledge, which has been signed by 42 senators and 196 members of the House.

There was outrage all around, reflected in a nationally-syndicated column this Monday by Robert Novak. "The quarrel over the Burr amendment reflects not only a failed Republican reaction to big government but also a weakening of GOP resolve to hold down taxes," Novak wrote.

Senators were furious that they are being depicted as tax increasers when they were trying to lead the fight against socialized medicine. They (correctly) believe that they were offering a solution to a major distortion in the tax code and wanted to fix it while expanding access to private health insurance for all Americans.

"The 'Every American Insured Health Act' provides every American with a refundable, advanceable flat tax credit of $2,160 per individual and $5,400 per family that gives them the freedom to choose the health care plan that best meets their needs," Burr said in introducing the bill as free-standing legislation a week earlier with four colleagues. "The plan is budget neutral and puts an end to unfair discrimination in the IRS tax code that only benefits health coverage offered by employers and that disproportionately subsidizes Americans with more costly health plans and with higher incomes."

But Norquist concluded that the senators' proposal would result in an $800 billion tax increase over 10 years by eliminating the tax preference for job-based health insurance, which he says would be a tax increase, and replacing it with refundable credits, which he says would be new spending.

The policy community also was angry after advocating for years eliminating or capping the tax exclusion and replacing it with a system of individual credits.

Sen. Jim DeMint (R-SC) had an alternative ready to go that solved Grover's complaint that the bill was a tax increase by coupling the health insurance amendment with a fix to the Alternative Minimum Tax to make the package "tax neutral." But Sen. Tom Coburn (R-OK), a leader in developing the senators' alternative approach, balked, forcefully arguing that the health care alternative is not a tax increase.

So the amendment was pulled from the floor for another day's battle.

It is essential to fix the tax treatment of health insurance if we are to address the problems in our health sector that shut tens of millions of people out of the system and give open-ended tax breaks to higher-income people to purchase expensive health insurance, exacerbating the problems of the uninsured by driving up costs. The alternative is to continue down the road to further encroachment of government control through expansion of government programs like SCHIP.