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Estimating the Excise Tax

In a long defense of the PWC/AHIP report, Megan McArdle goes to bat for the most indefensible element of the analysis: the decision to avoid estimating the response to the tax on high-cost insurance plans (which is, in fact, the whole point of the tax), and simply pretend that everything will remain unchanged except that a lot of people will pay a large new tax that they don't have to pay. Moreover, she conscripts the Congressional Budget Office to help with the argument: "You might think that everyone is going to structure their benefits to get around this tax," McArdle writes. "But the CBO expects us to collect quite a bit of money from this tax."

Not quite. The Congressional Budget Office projections (which are, in this case, the Joint Committee on Taxation's projections, as the CBO doesn't estimate tax revenues) actually suggest that the bulk of the tax's revenues will come from the response to the tax, not the payment of the tax. As the New York Times reports, the JCT believes that "about $142 billion of the 10-year total of $201 billion to be raised by the [excise tax] would come from increased income and payroll taxes." In other words, the vast majority of the revenues would come because employers would "structure their benefits to get around this tax." Workers would receive more of their compensation in wages and less in health-care benefits, and because wages are taxable and health benefits aren't, tax revenues would go up.

McArdle can defend AHIP's report if she likes, but she's going against, not with, the CBO/JCT estimates.

Update: McArdle retracts.

By Ezra Klein  |  October 13, 2009; 11:48 AM ET
Categories:  Health Economics  
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This person, Megan McArdle, is wrong about everything. Why is she at the Atlantic?

She belongs on the WSJ op-ed page.

Posted by: bcbulger | October 13, 2009 12:01 PM | Report abuse

I think her problem is laziness. She simply doesn't bother to do any background reading, or research -- at least none that might challenge her Galtian world view.

Posted by: Jasper99 | October 13, 2009 12:06 PM | Report abuse

Thank you so much for pointing this out Ezra. There are some very credible analysts who fell for the same mistake Megan made.

Posted by: consid24 | October 13, 2009 12:14 PM | Report abuse

If Megan McArdle can have a job we should be at full employment. Geez. To say that employers would not restructure benefit plans to avoid escalating costs (and therefore the tax) is absolutely insane and goes against 40 years of actual employer response to rising costs. If she is right then we would all still be in 100% basic major medical plans and are employers would be paying all the cost.

Posted by: scott1959 | October 13, 2009 12:38 PM | Report abuse

Indeed this is a good answer by Ezra, we will see what more comes from Megan or others. PWC themselves are not going to be into this anymore, that much they have indicated.

Megan - again no point in piling on her. She is extremely frustrating on majority of occasions; but I still read her because there are some gems on occasions.

Plurality in blog sphere - I believe that is the oxygen for blogging. So Megan lives on and we will have good duels between these two blogs. In a way that is enjoyable and more important, it is informative.

Posted by: umesh409 | October 13, 2009 12:59 PM | Report abuse

"Plurality in blog sphere - I believe that is the oxygen for blogging. So Megan lives on and we will have good duels between these two blogs. In a way that is enjoyable and more important, it is informative."

Megan McArdle gets paid by the Atlantic so that someone who isn't lazy, spoilt and stupid can go unpaid. 'tis the circle of life.

Posted by: pseudonymousinnc | October 13, 2009 1:17 PM | Report abuse

I keep scratching my head why people ever gave Megan credibility as a "sane conservative". It's as if they cheery picked the stuff they liked and ignored the high degree of garbage. Now it's impossible for them to ignore it, but they want to cut her some slack.

Ponder how people would treat Glenn Greenwald or Paul Krugman if they were as often wrong on their facts and analysis as Megan is. They aren't, so people are reduced to saying they're "mean" & "nasty" (in the case of Glenn) and "shrill" (in the case of both).


Posted by: toshiaki | October 13, 2009 1:19 PM | Report abuse

What the commenters here said. Esp.1, 4, 6, and 7. TY.

Posted by: AZProgressive | October 13, 2009 1:46 PM | Report abuse

Megan doesn't really defend the PWC report. She has also acknowledged her mistake in representing the effect of the tax.

She came across fairly agnostic, to me.

Posted by: clynch1961 | October 13, 2009 3:25 PM | Report abuse

I agree this is the weakest part of the AHIP report, but I would really like to see JCT's methodology.

I question how many people who are hit with this tax will really be able to shift to a lower cost plan. And with the government picking up the tab beyond 12% of income will anybody <400%FPL pay it?

Posted by: bmull | October 13, 2009 3:25 PM | Report abuse

Did everyone miss the discussion of the relationship between employer health care costs and wages? The increases in wages will be as little as the market will bear, not the full savings of reduced benefits.
Anyone know the answer to this: if the plan for families exceed the limit, but the employer pays none of the premium, who gets hit with the excise tax?

Posted by: Underwriterguy | October 15, 2009 7:49 PM | Report abuse

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