Taxing Health Benefits Could Kill Health Care Reform
by AFSCME President Gerald McEntee | June 03, 2009
This entry by AFSCME President Gerald McEntee is cross-posted from Huffington Post and Oxdown Gazette.
In recent days, two generally progressive commentators have written in favor of taxing all or part of the value of employer provided health benefits as a way of paying for some of the costs of health care reform. They’ve suggested that AFSCME might “kill” health care reform because of our opposition to taxing the value of benefits. Of course we reject that characterization of our efforts.
In fact, AFSCME plays a leading role in the effort to pass real health care reform. Our stand against taxing benefits is grounded in a conviction that regressive taxation cannot cure our health care ills. Just as importantly, we are concerned that linking an unpopular tax to health care reform could kill our efforts to provide health care for all.
The argument in favor of taxing benefits centers on two points. First, like all tax exclusions and deductions, the exclusion of health benefits from taxation is worth more to higher income individuals who are in higher tax brackets. Second, the federal government foregoes $145 billion annually by shielding employer-sponsored health care benefits from taxation. Fair enough.
But there are real risks that come with a tax on health benefits. They include the likelihood that employer-sponsored insurance will be destabilized at a time when it should be reinforced; the disparate impact a change in policy will have on people who are older, sicker or in higher cost areas; the disproportionate burden a change will have on children and families; and an erosion of benefits and shifting of risk to individuals.
Some argue in favor of a compromise that would tax only “Cadillac” or “gold-plated” health insurance plans. But that won’t work. Just last month, The Commonwealth Fund reported that “many so-called “gold-plated” health benefit premiums are high only because insurance costs vary according to the size of the firm, the geographic region in which it is located, and the composition of the employer’s risk pool.” Establishing a universal cap in today’s insurance market, they noted, “will have a disproportionate impact on workers in small firms, high-cost areas, and expensive risk pools.”
In addition, we need to consider the wisdom of taxing health benefits in light of the alternatives. For example, according to the Senate Finance Committee, the favorable tax treatment afforded to Capital Gains and Dividend income costs the government $178 billion per year. However, unlike the tax treatment of health benefits which goes to a broad swath of the American public, a very narrow economically privileged slice of taxpayers benefit from this favorable treatment.
This begs the question: why levy a tax on working people when this inequitable favorable tax treatment, primarily available to the wealthy, remains in place? Many of the same progressives who advocate taxing health benefits have rightly railed against rising income inequality and the dangers it presents to robust economic growth. Why not fund health care, mostly for low income underinsured and uninsured people, while simultaneously addressing one of the biggest causes of wealth inequality?
The introduction of the health benefits tax could well be the death knell for health care reform. In the historic 2008 election campaign, then Senator Barack Obama campaigned hard against the taxation of benefits, a key component of John McCain’s health care policy. President Obama recognized the taxation of benefits is unacceptable to the American public and made it a centerpiece of his campaign. He spent tens of millions of dollars on advertisements slamming McCain on the issue.
If anything, public opposition to a tax on benefits is growing. Recent polling indicates that 80 percent of likely voters oppose taxing the value of benefits while only 17 percent support it. Strong majorities oppose a health care tax without regard to political affiliation.
AFSCME opposes the health benefits tax because it could “kill” health care reform. Is there any better way to give Republicans cover to protect the insurance industry and their right wing cronies, and vote against reform, than to let them frame the issue as opposing a very unpopular tax? Do we hear Republicans campaigning in favor of taxing health benefits? Sometimes, progressives must be saved from themselves. That’s what we are doing when we stand clearly in opposition to taxing benefits that America’s working families earn on the job.
