Brand New Cadillac Will Get The Excise Tax

David Kurtz at TPM:

It appears that a deal has been struck between labor and the White House (though there are lots of players here, including, of course, the House and Senate) on the excise tax on “Cadillac” health insurance plans. Details still to come. This doesn’t mean a final bill has been agreed to, but it was one of the major sticking points.

Ezra Klein:

There are no details yet, but it’s apparently the product of “more than 15 hours of negotiating at the White House, ending after midnight. Participants included AFL-CIO President Richard Trumka; Andy Stern, head of Service Employees International Union; Anna Burger, head of Change to Win, and the leaders of unions representing teachers, government workers, food and commercial workers and electricians. Obama’s deputy chief of staff, Jim Messina, was the lead White House bargainer, although Vice President Joe Biden also was involved periodically.”

Obama is supposed to head over to the House later today, and it’s probably fair to assume the point of that visit is to sell members on this compromise and clear the way for a final compromise on the bill. Early reporting is that the deal exempts union plans for a couple of years and raises the threshold for the tax, but we’ll see.

David Frum at FrumForum:

This continues the evolution of the Obama plan: ever more entitlement expansion, ever less reform and cost control. The tax on so-called “Cadillac plans” was not just a revenue raiser. It was intended to end one of the most dangerous perverse incentives in the US health system: wages are taxed, but health benefits are not, incentivizing everybody to take compensation as much as possible in the form of benefits. That incentive will now be perpetuated, at least for union employees – precisely the group for whom the incentive did the most damage.

As things are going, by the time Obama and the congressional Democrats are finished, we’ll have expanded the present system without reforming it. Bill Clinton’s White House deployed the phrase: “Mend it, don’t end it.” Obama’s motto seems to be: Why fix it when you can inflate it?

Michael Whitney at Firedoglake:

If unions take this deal, it’s a sell-out of epic proportions.  I’m hard pressed to think of a deal unions could cut in health care that would cause more long-term damage to not just the credibility of the labor movement, but to the middle class itself.

The excise tax is a tax on more expensive insurance plans that is supposed to fund part of health care reform.  It was branded the “Cadillac tax,” but that distorts the reality of who it will effect.  This isn’t a tax on the rich; it’s a tax on the middle class, the old, and the sick with more expensive plans.  And a good chunk of those plans are negotiated under collective bargaining agreements, i.e. under union contracts.

Richard Trumka laid down a line and said the AFL-CIO would not support a plan without a public option.  While other labor groups haven’t been as forceful, progressives have looked to the AFL-CIO as the most defiant of the veal pen.

Presumably, in Monday’s meeting at the White House, labor leaders made clear that the excise tax on their plans wouldn’t fly, and that the Employee Free Choice Act would have to come up for a vote (and pass?) in a few months after health care.  And I’m sure they got the same assurance they’ve got from Rahm and Reid for more than a year on labor law reform: be patient, it will come up and pass.

If unions take this “deal,” if the labor movement decides to fold and exempt themselves from the excise tax, they fulfill one of the worst of stereotypes of labor unions: blind self interest.  By abandoning the nonunion middle class and protecting only their own, the labor movement is throwing any hope of future relevancy out the window.

Conn Carroll at Heritage Foundation:

And Obamacare’s Big Labor handouts don’t end there. The legislation also sets aside $5 billion to subsidize the costs of employer health benefits for early retirees. As Heritage fellow James Sherk notes, few nonunion employers, of course, pay pension and health benefits for workers to retire at 55. And then there’s the small business exemption from the employer mandate for businesses with less than 50 employees. At first this applied to all small businesses, but after aggressive lobbying by Big Labor, non-unionized construction businesses were unexempted. Big Labor lobbyists explicitly admitted they wanted to use Obamacare’s job-killing employer mandates as a competitive advantage to drive non-unionized firms out of business.

So where does the White House and Congress propose to regain the revenue lost from exempting unions from the health care excise tax? The people who fund job creation: investors. The Obama administration wants to apply the Medicare payroll tax not just to wages but to capital gains, and for the first time ever, to dividends and other forms of investment income. This tax will hit seniors the hardest since many of them live off their dividend and interest income, in addition to their pension and Social Security checks. But it also hurts us all since high taxes on capital gains, dividends, interest and business income increase the cost of capital, thus depressing investment at the very time the economy needs new investment to grow and create jobs.

Big Labor’s high wages and inflexible work rules have already bankrupted our nation’s once proud automobile industry. Across the country, their early retirement and exorbitant pensions are bankrupting states. The health insurance excise tax was once the signature health care spending cost cutter of Obama’s entire health care plan. Now it has been gutted at the altar of Big Labor power. The big loser in all of these cases is you, the American taxpayer.

UPDATE: Megan McArdle

Tyler Cowen

Ezra Klein

UPDATE #2: David Brooks in NYT

Ross Douthat

Jonathan Chait at TNR

Jonathan Cohn at TNR

Douthat again

UPDATE #3: Chait responds to Douthat

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2 Comments

Filed under Health Care, Legislation Pending

2 responses to “Brand New Cadillac Will Get The Excise Tax

  1. Pingback: What We’ve Built Today « Around The Sphere

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