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An excise tax on high-end health insurance benefits is an extremely regressive tax on the middle class. Even though Ezra Klein claims this tax is progressive, it is not. It would raise relatively little money from the wealthy.
It is true that the bottom 30% is unlikely to pay very much of the new excise tax, but ,by the same token, the top 0.1% will pay almost none of it either. As Klein admits, the very most expensive insurance plans for CEOs are worth maybe $40,000. While that is a lot, it is only three times as much as an average family insurance plan’s $13,375. On the other hand, a CEO’s financial compensation could easily be more than 50 times as much as an average family’s salary.
According to the Kaiser Family Foundation, very few plans (roughly 2-4%) are currently over the $21,000 for family (and $8,000 for individual) threshold, but premiums are increasing at around $800 a year and the threshold for the cap is only pegged to the consumer price index. In the first few years, the tax on benefits would hit only a few families, but by 2019 it would affect around 40% of insurance plans that would otherwise have been offered.
Teachers, policemen, firemen, coal miners, union members all tend to have very generous health insurance. For the top 0.1% of income earners (people making over $2,000,000 a year) in this country, health insurance benefits are a tiny percentage of overall compensation. For many middle class families, health insurance benefits are a significant portion of total compensation. Placing an excise tax on health insurance worth over $21,000 will hit the middle class much harder.
For example in 2019, let’s assume a CEO makes $3 million a year and has a family health insurance plan worth $43,000. Whether or not he pays the excise tax or has the money converted to income, he is paying taxes on an extra $22,000. That is only a 0.7% increase in the amount of taxable earnings for the CEO.
On the other hand, picture a coal miner, policeman, or fireman making $65,000 a year with a family health insurance plan worth $27,000. He will be paying taxes on an additional $6,000 of his earnings. For the middle class family, that is a whopping 9% increase in the amount of their earnings which is now taxable.
In 2019 the tax on benefits should generate–at most– two to three percent of its revenue from the richest 0.1% of households. By contrast in 2007, 12.3% of the nation’s income went to the 0.1% richest people in the country. Relative to their income, the tax on benefits would generate very little from the richest Americans. A flat, across-the-board, 1% tax on all earnings would generate a dramatically greater proportion of its revenue from the richest Americans than this new excise tax on health insurance benefits.
Some people argue that ending the tax-exempt status of health insurance is a good policy necessary to reduce the growth in health care spending. (I personally dispute that this is a major factor in cost, and think the basis for the claim is shaky at best.) But by no standard can I accept calling a tax progressive when it disproportionately favors millionaires over middle class Americans.
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How would an excise tax on the top 20%, not just the top .01%, work to lower costs? thx.
The taxation of employer provided health insurance is a massive tax increase on the middle class. On a family policy of $12,000., employment taxes ALONE add an extra $1,835. in employer/employee costs even before income taxes are added. The wealthy, of course, avoid employment taxes.
Thanks Jon, great post. Why tax the people you’re trying to help to pay for health reform? It should be simple…
the bush tax cuts to the wealthy, even if allowed to expire on schedule, will have cost our government (and thus the american people) over ten years, $3.9 trillion. at the same time between 3/2001 and 12/2007, the american people experienced the weakest job and income growth in the post war period.
i feel some buyer’s remorse; did i not read the fine print? did i understand incorrectly big ticket items such as health care reform was to be paid by not just letting the bush tax cuts to the wealthy expire, but to take the rates back to what they were under clinton?
from wall street and investment banking with derivatives most americans do not even understand, the business of america being business, business is back to normal while, once again, the struggling middle class foots the bills with none of the benefit.
I guess it would be too rocket scientific to have the tax on Cadillac insurance plans kick in only when the cost of the insurance is less than 1% or whatever of income, so that it only applied to those who were the highest earners with the best plans?
The rate of increase in salary is much greater than the rate of increase in cost of health care, and that should be captured by policy.
The notion of taxing health premiums is in theory economically sound, because it puts downward pressure on appreciating premiums, but it is not politically feasible because it is not equitable.
In a meeting last Saturday my congress rep, Ed Perlmutter, announced that he was preparing an ammendment to the healthcare legislation to fund it by a new tax on stock market transactions. Actually it is an old tax that was eliminated in 1966. He stated that we had helped wall street and it was time for wall street to help america.
No Benefit? For years, the Republics have worked hard to keep the middle class safe from gay marriage.
Congressional Budget Office (CBO) score’s the baucus plan at $829 Billion over a 10 year period, that is paid for. The CBO also states that it will lower the deficit by $80 Billion and it would be much lower if there was a public option.
Criminally corrupt politicians are the reason the U.S. is ranked near the bottom of every catagory when ranked next to other modern, industrialized nations. Time for publically funded elections.
lieberman $12.6M, mcconnell $7.8M, baucus $7.7M, cornyn $6.7M, kyl $5.6M, grassley $5.4M, ensign $5.2M, conrad $5.1M, cantor $4.9M, nelson $4.9M, burr $4.8M, boehner $4.4M, hatch $4.4M, lincoln $4.1M, vitter $3.9M, carper $3.6M were paid by the Medical Industrial Complex to kill Health Care Reform. (Source: OpenSecrets.org, Aug. 09)
Follow the Money: Link
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Don’t let the Medical Industrial Complex steal your Health Care from you and your family by donating huge sums of money to Crooked Politicians in order to maintain the Status Quo. Keep up the good fight.SEMPER FI!
That’s delightful. They take away any retirement security, force us to cast our lot with the market, and then tax individuals trading in our retirement accounts at the same level as they do Goldman Sachs trading our country out from under us.
I guess the tax is progressive in the sense that it hits the middle class more than the poor, and it hits upper echelons of the middle class more than the lower echelons. But I agree you cannot call anything “progressive” when it leaves the rich so unscathed.
I think many workers would be okay with ending the tax exemption completely if they could cash out their benefits in a fair way. But so far I haven’t heard any proposals as to how that might be done.
Your hypothetical policeman making $66K and having a $27K health insurance policy, probably wouldn’t be paying much, if any, federal income tax. At most he would end up paying 15% on $6K or $900.
Your hypothetical CEO making $3M and having a $43K health insurance benefit, would be paying 35% on $22K or $7,700.
Technically, it is progressive. But, in real terms it is so muted as to be almost regressive.
“An excise tax on high-end health insurance benefits is an extremely regressive tax on the middle class.”
When did you libs start giving a damn when taxes hit the middle class? (Sales Tax, Fuel Excise Tax, Property Taxes, etc…)
Finally our voice is loud enough to be heard over the limousine liberals.
The CEO is probably being paid mainly in capital gains which is taxed at 15%.
If people want the government to do something for you, just like getting a service from anyone else. It is gonna cost money. Why must people whine that they have to pay for something that actually costs a great deal. Wow where has the responsibility gone in this country. Nothing is free. The same government that gives you everything is the same government that can take it all away. Take care of yourself.
short term capital gains is 30 some percent right???? over 2 years is 15%
It’s that same old “lets stick it to the rich” song.
It’s getting very old and is not at all convincing.
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peterboy October 19th, 2009 at 10:43 am
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here is how regressive that so-called high-end tax is.
I am on COBRA. I pay $324 a month to stay on the group plan.
When it ends after COBRA, I can get guarantee issue of the plan for $750 a month…or 9k a year. That would qualify as a Cadillac plan. Except it aint. It is only a CADILLAC COST plan because I have pre-existing conditions, that is to say I use it and have several prescriptions typical of a 55+ male.
Nice work with this tax scheme.
OB had a better idea. Lower the top bracket charity deduction to match the middle-class deduction–28%.
It raises hundreds of billions and is far more fair.
fine thought.
I can make a firm pledge, under my plan, no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.
Barack Obama
Problem being, that employer provided health insurance is a tax on wages, wages that would otherwise be earned if the employer did not have to provide insurance. Subtract from that high cost employer based insurance the lower cost of taxpayer funded Medicare for All, and even when taxes on working people replace the employer provided insurance, that is a NET DECREASE IN COST to working people for the cost of health care.
A surtax on full benefits plans, so-called “Cadillac” plans (has anyone checked with GM about trademark infringement?) is entirely regressive. This tax appears to be a sop to newly fiscal conservatives who demand that the middle class “share the pain” that the wealthy have laid off on them for decades.
Apart from top executives, whose full benefits plans are perks whose costs they never see – and who will never see any increase in cost owing to a surtax – the principal beneficiaries of full benefits plans are union members and those white and blue collar workers whose employers use their union-negotiated plans as the baseline for all other employees.
It is the middle class who will pay this tax. Period. Not coincidentally, will Congress forego its taxpayer paid, “socialist”, full benefits plan or accept a tax on it? I doubt it.
Neocons – of the left and right – claim to be sharing the pain with this tax. In reality, it is a weapon designed to drive down the acceptable level of “basic” coverage that voters will accept. The government wants standards as low as possible in order to put a lid on its costs. The insuresters want a low-coverage standard in order to maximize their profits. Employers want whatever will lower or reduce the growth in their costs. To my knowledge, none of these actors ever asked the plan beneficiaries what they want or need.
Full benefits plans should be the standard, not the wedge neocons – of left and right – use to drive a wedge between largely Democratic union members and other members of the middle class. This if fighting over crumbs so that insuresters and villagers can continue to enjoy their roast beef.
Paul Krugman has said repeatedly that repealing Bush’s tax cuts, returning the tax rates paid by the wealthy to the levels paid during Clinton and Poppy Bush’s administrations, would alone pay for health insurance reform. That would be a progressive tax, Ezra. A surtax on full benefits plans is not.
Ross Douthat today argues for a public plan that covers catastrophic care only. In his typically disingenuous fashion, he omits to say what a boon that would be as those with the most serious and expensive illnesses are socially and economically segregated into a government plan, leaving the least expensive and currently healthiest citizens to the caring hands of insurers.
The only thing that would maximize profits better is for the government to mandate that we all buy insurance, without regulating what passes for an acceptable health insurance contract and without offering such insurance through a credible public insurer.
I can see why Ross would promote his patrons in this way. Why the NY Times should continue to print his “thoughts” remains inexplicable.
You do realize that the charity tax credit is based off income tax bracket right. The “high income earners get taxed at 35% and get a credit of 35% on charitiable donations. Just as those in the 28% tax bracket get a 28% credit. I have no idea how the Government would make “hundreds of billions more in tax dollars” That would imply that the top lets go low and say 5% of income earners donate nearly a trillion dollars a year. Although that group does donate much but they don’t have that much.
Wanna know how to pay for the public option, fix Soc Sec and Medicare that is fair to everybody? It is really simple:
1. Let the Bush tax cut for the super rich sunset as it was originally passed.
2. For any family or person making over $250K NET income from salary and that have their health care premiums partially or fully paid for by their employers they should have those contributions taxed as regular income. Buck up Americans and finally admit that it is income – you will be doing all of us a favor by facing reality.
3. Eliminate the cap on Soc Sec max income. That is to say if while you are making it your paying it. And finally…
4. To determine government payments when you retire, put prorated means testing on Soc Sec, Medicare and Medicaid benefits. The more retirement income you have coming in over a certain amount of annual income (pick any amount $250K and up gross) the less you should get from Uncle Sam. If you do not need it why would you want to take it – cause your greedy maybe?
Sure there are those that will argue that this is too simplistic (and to scare the hell out of any rethuglicons that read FDL – socialistic) why complicate things if you do not have to. Besides, like me once you get yours why not practice a litte of the lost art of noblesse oblige to show you have some class in your plushy golden years…
The “cadillac” designation will likely apply to the premiums of anyone over 40. Don’t forget that current bills allow the insurers to vary premiums because of age – I think they’re allowed to charge a 60 year old five times the amount of a 20 year old (FYI my current plan charges the 60 yr old less than 2 1/2 times). So, as people get older they will be much more likely to be subjected to the excise tax.
If you want to oblige some of that noblesse my way, lemme know.
Nicely said. It raises what ought to be an obvious point. There should be no surtax on the value of premiums paid for health insurance. That both makes the insurance itself more expensive and lowers the floor for what constitutes acceptable minimum quality of health care.
Let’s face it: only the rich and destitute will have access to health insurance that isn’t paid for by way of health insurance. If a surtax on health insurance premiums isn’t avoidable, it ought to apply only to those who also make in excess of an agreed high minimum salary. That would exempt the likes of active and retired union workers.
What non-GOP head case wants to tax a middle income union worker or their surviving spouse on medical insurance when the executive paying the same tax has it paid by a gross up in salary – and therefore has no more skin in the game than a Congresscritter who can have their gout looked after for virtually nothing by taking an express ride to the Navy-staffed hospital underneath the Capitol Building?
Let’s not forget in this debate that Congresscritters have no skin in this game except what promotes their re-election. Most are millionaires, in the top 1% of incomes, AND they have virtually cost-free taxpayer-paid FULL medical care (while active) and medical insurance (when retired). Like John McCain and Orrin Hatch. I can’t imagine a more socialistic benefit, can you?
It is over the ten year window not one year.
Another thing to keep in mind is that small companies are charged MUCH higher rates for the same health insurance than large companies. This will be another burden on small business, which is the part of the economy that generates new jobs.
Unless the small businesses can switch to a public option instead and dump the thieving insurance companies altogether.
I can’t believe they are calling this the Cadillac tax in the news. I can understand that is how the Admin wants to spin it, but the press should use some judgement.
Just because the Admin says it, does not mean they have to type it and put it on the air, as if it were the undisputed truth.
This is the Union tax. In a few years it will be the Police, Fire, Senior, and Teacher tax. How many people who will pay this tax are really driving Cadillacs, and how many are Union members.
Listening to the news, you’d picture somebody who will pay the tax as some guy who looks like the Monopoly guy with a top hat and monocle climbing out of his Cadillac.
the average profit margin for health insurers is about 4% so with that being the standard for thievery i guess companies like microsoft 26%, exxon mobile 8%, Cisco 16%, general electric 7% and monsanto 16% are the barney madoffs of the big business?
source finance.yahoo.com
These proposals would absolutely gut the broad political support that Social Security and Medicare currently enjoy. The reason that the social security tax is capped is that benefits are capped. If you break the current system where contributions and benefits are linked (with benefit subsidies for low wage earners) then SS looks like a welfare program rather than a government run pension system – and not many people are going to be keen on seeing 12% of wages going to a welfare program.
Likewise with Medicare – here the tax is currently uncapped, but at least you know you will receive the health care you need in retirement, also without a cap. Both of these proposals would also wreak havoc with the marginal tax rate as benefits phased out.
Finally this system would create bizarre incentives to save less for retirement, about the last this we should encourage at the current time.