Corner, Backed Into

by publius

The Obama campaign has a problem -- it needs more revenue for health care coverage reform.  But increasing revenue is politically problematic.

One potential source of funding is to tax employees' group health benefits by imposing a modest cap on the amount that can be excluded.  It raises revenue, and it's actually good progressive policy.  The problem, however, is that Democrats are terrified to do it.  And as Jon Cohn reports, Reid has apparently vetoed the proposal.

Hopefully, we'll find money elsewhere - the reform is too important.  But a lot of the blame here falls squarely on the Obama campaign's demagoguery.  They bashed McCain over the head with this, and now they've penned themselves in.  McCain's proposal wasn't bad because of the tax per se, but because it would have thrown people out of employer health care and into a not-regulated-enough individual market where they lack bargaining power, information, low deductibles, good coverage, etc.

It's just another a reminder that what you say before the election matters.  If you say the things you want to do, you have a mandate and political cover to do them.  If you don't, you won't.

And one last general point -- the campaign attacks also reinforced the broader anti-tax narrative that is hurting progressive priorities and, by extension, the nation.  At some point, that narrative has to change.

Comments

[Creamy Goodness]

Good luck with that pro-tax message, poob.

[John Thullen]

"the broader anti-tax narrative"

I'm kidding (and I'm happy to have a "kidding" tax imposed to pay for healthcare; it would do nothing to decrease my propensity for kidding), Publius, but the broader anti-tax narrative ain't so hard to sustain if even you feel compelled to let us know that you hate taxes, too.

The fact is that the "taxation without representation" deal was a ruse way back during the original tea party. Americans don't want to pay taxes, represented or not.

As far as I'm concerned, the initiatives at the state level to take tax decisions away from elected representatives makes the idea of elective democracy pointless.

Abolish legislatures. Including the U.S. Congress, who are scared crapless of annoying their constituents by raising taxes or limiting spending.

[publius]

sort of an aside, but I just meant to say that I didn't enjoy "paying" taxes, just like I don't enjoy paying for anything. probably a poor choice of words before though -- point taken on that

[human]

Wait, what? I read the Cohn article you linked and I am really confused. If taxing employer provided health benefits ultimately results in them going away, then there's no more revenue to tax. How is that a good idea?

[DBake]

I think that people might hate paying taxes a little more than paying for anything else because you don't have the option of forgoing the service.

Anyway, isn't there something politically more palatable that could be taxed to raise revenue? I'm all for universal health care and paying for it, but I don't like the idea of taxing some middle-class family for their non-fungible, inflated in cost health insurance.

Can't we just tax regular income?

[rawdawgbuffalo]

we dont really have a foreign policy but rather a Foreign Policy Faux Pas

[Slartibartfast]

I'm just having a flashback to last year when McCain proposed removing the tax-exempt status on employee health insurance benefits.

[publius]

DBake - my understanding is that it would put a cap on the amount to be excluded. Thus, most people wouldn't be hit, but wealthier people would be (this depends on numbers actually).

[A.L.]

Putting aside the merits of Obama's attack on McCain, I think it was an effective one. And it would be even more effective when used by the Republicans against Obama and the Dems. Putting a cap on the tax exemption for health benefits makes sense from a policy perspective, but it is terrible politics. It doesn't matter that this is a Republican idea. No (or very few) Republicans will vote for the final bill and all of them will immediately hammer the Dems for raising taxes on the middle class and will hammer Obama for breaking his word. Plus, the people who will be affected by the cap include a lot of blue collar workers who get good benefits, and they'll be pissed.

There is very little political risk in passing a health care bill that merely provides people with new options. But as soon as it starts taking away stuff (like a tax exemption) that they already enjoy, then it's very politically risky. Republicans will find sympathetic stories of blue collar workers losing their benefits or being hit with taxes and they will publicize them like crazy.

I think the Dems should focus on sources of revenue that are either elective (taxes on stuff you don't have to buy) or progressive (aimed mainly at the wealthy). Anything else is very risky politically.

[Ugh]

DBake - my understanding is that it would put a cap on the amount to be excluded. Thus, most people wouldn't be hit, but wealthier people would be (this depends on numbers actually).

Does this make sense? Is it really true that the wealthier you are the better and more expensive your health plan is? That doesn't seem quite right to me.

[rea]

The fact is that the "taxation without representation" deal was a ruse way back during the original tea party.

Well, gosh, they sure talked about it a lot at the time, and the taxes involved were really nominal--but I guess you understand these things better than James Otis or Patrick Henry did.

[Tony P.]

"Better and more expensive" is a dubious construction, Ugh. That higher-paid people probably have more-expensive health plans seems plausible enough.

What I don't get is this: the two main chunks of money going into the pot which is about one-sixth of GDP and which we call "health care spending" are insurance premiums and taxes. If it is indeed true that providing decent health care to all Americans will require the pot to get bigger, then either taxes or premiums or both must go up. I don't know about rich people, but I know that I pay taxes and premiums out of the same pocket. Why should I care whether my expenditures are labelled one thing or the other?

Frankly, I don't believe that "health care spending" needs to increase in order to provide health care to everybody, anyway. We employ 2.3 physicians per 100,000 population. Compare to Britain at 2.0, Canada at 2.1, France and Germany at 3.4, all of which spend less money per 100,000 population than we do. Health care is prescribed by physicians. How much health care is available is gated by physician-hours available. What we have in this country is too many non-physicians getting paid out of the "health care spending" pot. I cite again my favorite, though trivial, example: the actors in all those boner pill commercials. We have managed to evolve a "health care system" which is a make-work jobs program for a boat-load of non-physicians. It's "health care" Keynesianism. Why conservatives think that's a great thing beats the hell out of me.

--TP

[tgirsch]

human:
If taxing employer provided health benefits ultimately results in them going away, then there's no more revenue to tax.

Employer-provided health benefits are currently counted as pre-tax income -- the income's there, it's just not taxed. So even if you were to take away the benefit completely, the underlying income would still be there, and fully taxable. It's more accurate to say that they're capping a deduction than it is to say that they're taxing a benefit, as I understand it.

[DBake]

My mistake. That'll teach me not to mouth off before reading the links.

[Ugh]

That higher-paid people probably have more-expensive health plans seems plausible enough.

I'm just saying that I don't think that's true. To take just one example, I'm fairly sure (though not certain) that the secretaries, receptionists, and paralegals at my law firm have the same health care benefits that the associates do. And yet a senior associate likely makes four times as much as a senior secretary (and probably close to eight times as much, if not more, as a newly hired paralegal).

If you're going to tax health care benefits above, say, $5K, and the benefits provided by the firm are $8k for each person, that's going to come down harder on secretaries and paralegals than associates.*

Now maybe I'm wrong and associates have more expensive plans, or maybe my law firm (and maybe law firms in general) is the exception, but it doesn't seem self-evident to me that higher income earners have more expensive health plans, until you really reach the upper echelon.

*and in any event all the associates have the same benefits, despite the senior associates earning 50-100% more than the junior ones.

[cleek]

there will be no health care reform. therefore, not being able to pay for it is a moot point.

[Nate]

Who could have predicted that parroting Republican anti-tax demagoguery could have caused presented a problem when it came to paying for things?

(Not that Republicans give a warm fart about spending, just spending that might convince people that government's not worthless when it's not run by Republicans.)

[Jordan]

Tonny P.
Nice observations. Why do you care what is called as long as it is payed out of the same pocket. What matters is how much of GDP is spent on health care and not spent on consumption which supports economy. What also matters how much of that is spent on non health providing expenses, such as insurance sales comissions, lobbying, advertising pills, compettition, malpractice insurance, CEO bonusses and dividends, complicated billing. All of which is not wasted on in other well organised systems, where they can say that they spend much less on health care. Tonny has it right when calling our health care system a Keynesian middleman spending paradise.

Do you ask who pays for unpaid medical bills that drive people into bancruptcies, who payes ER visits that cover uncovered people. The truth is there is no $1 trillion in extra expenses for healthcare reform. That expense will only be transfered from other differently named expenses onto public option as projected accounting not additional acctual expense. Medicare and states already pay for never paid ER visits bills discarded in bancruptcies, and for illegal allien's visits. And it is paid by higher private insurance premiums from higher provider's cost, beacuse health providers will keep their average earnings no matter how many bills go unpaid.

The most difficult problem a massive flight of insurees from private to public option is how to transfer that benefit of lower labor costs onto the employees and not into CEO pockets. If todays system is transfered from this into a new public option there would be an enormous savings for corporations that is going for labor costs as it is presently. Wages would not increase but there would be cost shift onto the employees trough higher taxes. Companies would have huge savings that usualy go to CEOs bonuses and dividends. Unless there is a hike in minimum wage at the same time as public option gets rolling, which makes it so simple, but who will do it?

[JoshA]

Obama campaign? Is this October 2008?