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Is the Excise Tax Progressive?
On the left, one controversial part of health-care reform is the Senate's health insurance excise tax, which forces insurance companies to pay a tax on high-cost insurance plans. Unions oppose the tax because many of their members have expensive health benefits in lieu of higher wages -- leaving them more vulnerable to its effects -- while health wonks love it because it provides an incentive for insurers to rein in costs on their most expensive plans. The Center for Budget and Policy Priorities has pretty much convinced me that the excise tax, properly tailored, is a good idea. Now here's Ezra making the progressive case for the tax:
The reason is that, unlike the House's surtax on family income over $1,000,000, the excise tax on high-cost insurance plans is not simply a tax. It's also a policy. Economists believe, with substantial evidence, that it will restrain the growth in health-care costs by making employers less willing to pay the automatic increases that insurers pass down each year. That money, they believe, will be routed back into wages. This is not intuitive, but it is, again, heavily backed up by evidence.Few forces in American life are as regressive as the rise in health-care costs. At the bottom of the income scale, the rising costs make it impossible for employers to offer insurance coverage and convince some employers to end their health benefit programs, throwing their workers into the ranks of the uninsured. Moving up, working-class folks see their wages stagnate and their premium payments increase.
Ezra emphasizes the evidence because many of the arguments against the tax are simply that economists don't know what they're talking about it -- it's just the "egghead economist approach," says the AFL-CIO's Jerry Shea. But barring better arguments, I think labor is wrong on this one. An excise tax, appropriately targeted, is what one administration official calls "a revenue raiser and a game changer": It doesn't just cover the costs, it brings them down, too. That means both more subsidies for low-income health care and cheaper premiums for everyone; if economists are right, it also means higher wages.
-- Tim Fernholz
COMMENTS (5)
All Ezra Klein is doing is damaging his already less-than-shiny reputation.
Nobody believes that the savings will be passed on in the form of higher wages, as Ezra argues. All people will notice is that there taxes have gone up.
Making arguments like this a year ago, when people like you and Ezra were still pretending you actually cared about healthcare, was one thing. Doing it now is just a joke. In case you haven't noticed, all the people who will actually be voting based on healthcare have sided against you so-called wonks.
Posted by: soullite | November 5, 2009 3:19 PM
But barring better arguments, I think labor is wrong on this one.
Um, Labor can't be wrong on this one. They negotiated for better health plans in lieu of other perks. If their health plans are taxed, they should default on whatever they promised in exchange.
And Ezra (bless his heart) has been a huge joke - I love how you guys occasionally tout him as some kind of TAPPED success story - ever since the 2008 primary when he wept, tore out his hair, beat his breast, and swooned after hearing the God Obama speak.
Your motto should be "TAPPED: Stepping Stone to Selling Your Soul."
Posted by: Anonymous | November 5, 2009 4:03 PM
Your argument - and Ezra's - does not make any sense. Sure, lower health care cost increases tend to increase wages. That makes total sense. The problem is that the excise tax doesn't lower health care costs, it *raises* health care costs by taxing benefits. Raising health care costs leads to *lower* wages.
But let's reduce this to a little common sense: employers currently wield almost total power over their workers because of high unemployment and the decline in union power in the private sector. It's silly to think that employers will pass any cuts they make to health care back as wage increases. They'll just cut health care, because a tax will raise the cost of providing the benefit.
If you are lucky (or smart) enough to be in a union, at least your employer will he forced to bargain. But if you are not, you are completely out of luck. Unions know this is a disaster - they (and those of us who work for them) aren't getting bamboozled here.
Keep mind: if health care cost increases led employers to create a more efficient system, we'd have the most efficient system in the world. In the real world, employers have already tried to squeeze as many efficiencies out of the insurance market as they can. There's no magic efficiency they will suddenly find if an tax is imposed on their plans. Instead, they will just have to cut their spending on health care, which will reduce benefits and total compensation.
An excise tax is not progressive. It punishes people who have relatively high-cost health care and punishes those employers who have agreed to relatively high-cost health care benefits, punishing those who do the right thing for their workers.
The Baucus bill covers 1/3rd of plans in 10 years. That's not Cadillacs - it's Chevys.
Gerry Shea is absolutely right - this is a case where wonks have talked themselves into a corner. They are too far out on bad arguments now to admit they are wrong.
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