The “Tax Increase” Republicans Used To Like

In all the talk back and forth about whether or not the individual mandate is a “tax,” and how large the other tax increases in the ACA are in a historical context, Ezra Klein makes an important point about what is actually (in the long run) the largest tax measure in the legislation: the tax on so-called “Cadillac” insurance plans:

It’s a tax on unusually expensive, employer-provided health insurance plans. It begins at $10,200 for an individual plan and $27,500 for a family plan. Above that, there’s a 40 percent tax on the excess premiums. So if your plan is valued at $11,200, your employer will pay a 40 percent tax on the $1,000 surplus.

Over time, the thresholds will rise more slowly than health-care costs, which means the tax grows bigger. But the idea behind the tax isn’t to raise money: It’s to change behavior. The hope is that it will pressure employers and workers to choose less-expensive plans. If it works, additional tax revenue will be generated less by so-called “Cadillac” plans subject to the excise tax than by employers delivering more of their workers’ compensation in the form of taxable wages and less in the form of expensive health-care benefits.

This is actually an attempt to address a core Republican concern: The tax break for employer-provided health insurance, which Republicans believe encourages employers to spend too much on health care while also making it impossible for a health-care system not based on employers to emerge.

Indeed, as Ezra notes, George W. Bush and John McCain both proposed to kill the employer deduction altogether, substituting individual tax credits instead. And Mitt Romney’s ill-defined health “plan” would, according to his campaign’s description, “end tax discrimination against the individual purchase of insurance,” which is code for some sort of major restriction on the deduction for employer coverage. You can call that “closing a loophole” if you want, but it is effectively a tax increase, as the Obama campaign argued in attacking McCain’s plan in 2008.

The broader point is that the tax code rewards and punishes all sorts of behavior, and calling one provision a “tax” and another an “incentive” and still another “letting Americans keep more of their money” is all pretty much just verbiage. Sometimes I think progressives should avoid this whole game and just suggest their policies will add to the overall economic well-being of citizens, and their actual standard of living, and leave it at that.

Ed Kilgore

Ed Kilgore, a Monthly contributing editor, is a columnist for the Daily Intelligencer, New York magazine’s politics blog, and the managing editor for the Democratic Strategist.