The Cadillac Tax Gets a Realignment
Some will say that the new deal reached on the tax on so-called Cadillac health care plans is a giveaway to unions -- and they won't be wrong -- but in isolation it is a step toward "the least worst way to do the wrong thing," which is what passes for success in Washington these days. Buried in The Washington Post article by Lori Montgomery and Robert D. Shear:
The deal cut Thursday would raise the value of policies subject to the tax to $24,000 for families and $8,900 for individuals. Plans with significant numbers of women or older workers would receive an additional break, as would workers in high-cost states and high-risk professions. Dental and vision plans would be exempt starting in 2015. And workers with collective-bargaining agreements and government employers would be exempt until 2018, giving labor leaders time to negotiate new contracts.
The improvement is that the tax burden will now recognize differences in underwriting costs, which was the source of my objection to it. The giveaway is that unions are being rewarded with a delayed implementation for the fact that they explicitly bargain over fringe benefits. I would hazard a guess that all workers who have health insurance bargain over it, at the expense of wages or other forms of compensation. I say "in isolation" because the estimated $60 billion cost of relaxing this tax is expected to be offset by "by applying Medicare payroll taxes to investment income for families earning more than $250,000 a year." I'm with Jim Glass on this one.
Temporary, eh?
workers with collective-bargaining agreements and government employers would be exempt until 2018, giving labor leaders time to negotiate new contracts.
Does anybody believe labor unions need until 2018 to negotiate new contracts?
And come 2018, what’s going to be easier for them then — finally negotiate a reduction of their health benefits that their members will hate every bit as much as if they had negotiated it in any of their prior contracts signed during 2010-2017 ... or simply renew the exemption for them that, after all, has already been law for a good eight years?
I mean, the new tax on investment income that's paying for their extra time to negotiate isn't going to go away then, is it?
This is just another permanent distortion of the economics of the program for interest-group appeasement. A major one. And it also worsens a distortion of the labor market that exists today -- "come work for us and your benefits will be tax free" -- which is one of the worst failings of the status quo.
BTW, what’s the public policy reason for excluding only union members from this change until 2018? Why not everybody? Don't we all need tax-free time to adjust? I do!
On a larger perspective, it's interesting watching the Democrats revolt against and flee from the financing principles for social insurance set down by FDR 75 years ago.
FDR specifically rejected financing Social Security with taxes on "the rich" and not only imposed a payroll tax instead but capped top incomes out of it.
He was very clear why he did that. It gave the workers who participated in the program "ownership" of it, because they were paying for all of it. This did two things: (1) It kept future politicians from taking the program away from them. (2) It restrained future politicians from expanding the program into a typical political vote-buying pork distribution program, because the workers were paying for the program's full cost themselves -- and they weren't going to pay for what didn't benefit them.
For all the 75 years since then all the Social Security Commissioners and Advisory Commissions, etc., have unanimously rejected "tax the rich" general revenue funding for Social Security for the same reasons. Rich-pay-for-poor funding would turn it into a welfare program that could either be slashed or expanded without discipline, by the majority group politics of the moment.
And when Medicare was created, LBJ (and Ted Kennedy!)followed the same rule -- funding by capped payroll tax for most of the cost. For the same reasons. Having the workers getting the benefit paying the tax assured the program was "worth it" to them.
But look today! Is anybody talking about a payroll tax to cover the cost of the program, because after all the program is worth it to working people generally?
Yikes, no! Nobody wants to pay for the dang thing. The unions are bailing out of the excise tax, which was supposed to cover 22% of the cost of the Senate plan. Apparently it's not worth it to them. Can it be worth it to the rest of us?
And another 41% of the cost is supposed to be "free" -- cuts to Medicare somehow without reducing anything it provides -- so it's not looking like anyone wants to "pay" that 41%. (Does anyone want to wager whether those cuts ever take place?)
And the remaining 37% was to be paid for with opaque taxes and fees dropped on employers, tanning bed operators, "exchanges", whatever, etc.
And now we are going to have a new "Medicare payroll tax" that has nothing to do with either Medicare or payrolls -- but which they don't seem to be able to honestly describe as a hit-the-rich tax on investments -- explicitly contra to the FDR social insurance principles.
It seems like, totally unlike the days of FDR and LBJ, our politicians today are telling us that nobody who is supposed to benefit from this plan thinks it is worth paying for.
To FDR's people this would have given pause. Not so much today though.
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Re.: "I'm with Jim Glass on this one." Thanks, I appreciate the company. It's usually pretty lonely where I am.
"Does anybody believe labor unions need until 2018..."
Does anybody believe labor unions need until 2018 to negotiate new contracts?
Certainly unions that don't have contracts don't need until 2018 to "renegotiate" them.
But the reports I've now seen on the legislation say that it provides that workers who unionize for the first time and negotiate their first contracts after the tax takes effect are also exempt from it until 2018.
What does that tell us?
That the purpose of this exemption is to give unions time to renogiate contracts, because they need until 2018 to do that?
Or that it is to give the unions an exemption that they'll then be able to extend permanently because, after all, it has been in place and paid for for a good ten years already?
(The "Bush tax cuts ploy": once in place for 10 years, pretty hard to get rid of.)
You decide.