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Excise tax: 'a rare win-win opportunity'

That's economist Jonathan Gruber's take, anyway. He's got a new analysis of the revised excise tax that's present in the Senate plan. The takeaway numbers are that the tax is expected to raise net worker wages from 2013 through 2019 by $234 billion, resulting in an average wage increase of $700 per household by 2019. About two-thirds of these gains go to families with incomes below $100,000, and more than 90 percent go to families with incomes below $200,000. Full memo here (warning: word document).

This is probably the most important benefit of cost control, and the one that's least understood. If we control costs, wages will go up. If we fail to control costs, they will continue to stagnate, and even fall, in real terms. But because people think of health-care premiums as a "benefit" that's separate from their wages, rather than as a deduction that's taken out of their wages, this remains poorly understood. You can make a pretty good case, in fact, that the best single thing we could do for cost control would be to itemize the deductions for health-care premiums on each worker's paycheck, much as we do with taxes.

By Ezra Klein  |  November 20, 2009; 5:21 PM ET
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--"If we control costs, wages will go up."--

Go on, pull my finger.

I think Gruber is playing you for a sap, Klein.

Posted by: msoja | November 20, 2009 7:56 PM | Report abuse

Naive to think employers will pass along any reduced health care costs, a mirage anyway, to the masses. The vast majority of private companies are more likely to keep most of the money as higher profits. Many economists often do not seem connected to the real world of economics.

Posted by: Aprogressiveindependent | November 20, 2009 8:33 PM | Report abuse

I'm not even going to address Gruber's memos because they're such a sack of academic dishonesty. They're borderline fraud really. We've been through it before.

The bottom line here is this tax falls almost entirely on working families. It increases at a rate of 15% and will eventually raise hundreds of billions of dollars PER YEAR. It's a cancer on the middle class.

Politicians are planning to use this tax, not only to pay for health subsidies, but also to balance the budget. Mind you, we have a budget deficit because Congress spends trillions on unnecessary wars, tax cuts for the rich, and Wall street bailouts. This is yet another bailout of the wealthy by the struggling middle class.

If you want to support such a policy, it's your call, but it's not progressive in the least. For those determined to break the generations-old social contract on employer benefits, both Wyden's "cash out" plan and a price cap on policies would be preferable to a tax. Yet neither is being seriously considered because the real purpose is to RAISE TAXES.

Posted by: bmull | November 20, 2009 8:58 PM | Report abuse

wow. you mean Gruber can promise me that I'll be richer by 27 cents a day in 2019 as compared to what I am now.($700/2555 days) Where do I sign up for that one! Wow this reform is great!!!

Does that include all the unemployed? Are they richer too?

Is this like the $500 that seniors get but they lose their medicare advantage by a rate of 64%. How about you let THEM make that decision, huh?

More and more the question is how many Democrats will lose their seats in 2010 and 2012 due to this?

Posted by: visionbrkr | November 20, 2009 9:07 PM | Report abuse

You could make a pretty good case that any savings on health care will go into the pockets of management as a reward for their genius in getting costs down, and workers will not see any of it. In that case, why should I think of it as lost wages?

Posted by: pj_camp | November 20, 2009 9:25 PM | Report abuse

Why on earth would anyone over the age of 7 think that employers in any meaningful number would pass ANY reductions in costs on to employees, other than senior management, in terms of increased wages?

Have we not seen over the past eight years that increases in productivity have generally resulted in static or LOWERED wages?

Posted by: edallan | November 20, 2009 9:59 PM | Report abuse

If out-of-pocket health care costs go up because employees end up receiving health care policies with higher deductibles, wouldn't this siphon off wage gains back into the health care sector?

Maybe there's some check in reform measures that keeps out-of-pocket increases in check; however, this seems like one potential off-set against the real impact of potential wage gains (the wage increases might increase tax revenue, but if a higher percentage of wages go to cover out of pocket expenses, then the gains could end up being a net wash, or perhaps worse from a workers perspective).

Posted by: JPRS | November 20, 2009 11:23 PM | Report abuse


actually with this reform out of pocket costs (in most cases) are going down. Its premium then that takes the corresponding increase in the inverse relationship. It may not necessarily be dollar for dollar but that's the way that it works.

Again its comical (and scary) watching Senators from both sides of the aisle talk about things they know nothing about.

Its like having your senator do open heart surgery (but this time on 1/6 of the economy). They have no practical experience and have shut out those that do. This could be a very ugly experiment.

Posted by: visionbrkr | November 20, 2009 11:32 PM | Report abuse

This idea is total BS. Employers won't raise wages because their health care costs increase because of taxation! They will just cut benefits.

Where is your evidence for this claim? Where is the JCT's evidence? Where is Gruber's evidence?

If employers cut health care benefits, that will mean people get worse health care - the opposite of the whole point of reform.

I can show you piles of employers who say they will cut benefits as a result of a benefits tax... and they don't say will raise wages. Why would they? Their costs just went up!

They know their workers don't have other jobs to go get - and no unions to protect them. They won't just give them raises just because they're nice. They will just cut benefits - that's it.

When was the last time anyone got a raise when their employer cut their health care, dental or vision benefit? That virtually never happens! And for good reason: if their costs go up, they just cut the benefit.

It's outrageous that you are getting away with helping to create an inside-the-beltway consensus. It's establishment neo-liberalism where workers get the shaft - again.

Doing this will seriously damage democrats' prospects at the polls. We need HCR badly, but the House financing mechanism gets it right! The rich can afford to pay a little more - why make the middle class suffer? Hopefully, if the Senate passes this tax, the House will hold and steer us away from this dangerous nonsense.

Posted by: PeteSikora | November 21, 2009 12:04 PM | Report abuse

What Gruber asserts is completely contrary to the experience of every working person in this country! When did any company pass on cost savings as wages? They don't. They raise management bonuses. If not, the enormous rise in productivity over the last 20 years would have gone to workers -- but we know wages have been effectively flat. This is simply nonsense.

Posted by: janinsanfran | November 21, 2009 1:40 PM | Report abuse

I don't have a problem with the idea that if employer insurance costs decrease, their employees are likely to see some increase in their paychecks. The amount of that increase would depend on the economic environment of course.

What I don't get though, is why this excise tax is being advertised as a strategy to reduce net health care spending. The justification for this tax is that it will reduce coverage for the affected population -- which just means that those people will pay more of their own money for the same treatment.

Who here thinks that if vision benefits are cut from a high-cost policy, people are going to stop buying glasses? They will just pay for the glasses with their own money.

And as far as out-of-pocket limits are concerned: just ask anyone with an High Deductible plan how much of his spending qualified for the deductible.

Posted by: Athena_news | November 21, 2009 1:52 PM | Report abuse

Athena-news -
This is some incredible double-talk here. Of course taxing benefits will lead to more costs passed along to workers and cutbacks in health coverage.

At least Ezra and the other beltway wonk-geniuses are reasonably clear that's their goal, as messed up as it is. But the claim that wages will go up is just surreal nonsense. Where is their evidence? Show me a few medium or large employers who say that! I doubt they could find even one.

Ezra: call some HR managers and ask them what they will do if already higher-cost plans become costlier. I strongly doubt they will tell you they will cut benefits and then grant wage increases. People need good coverage - taking it away is just wrong.

Posted by: PeteSikora | November 23, 2009 9:05 AM | Report abuse

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