Bad framing on the excise tax
A lot of the arguments over the excise tax are getting caught in a bad, and even slightly misleading, sales job from its supporters. Sen. John Kerry's blog post defending the policy, for instance, isn't playing it straight. Saying it won't tax employees is a distinction without a difference: It will tax insurers, which will add the tax into the cost of their plans, and employers will either choose different plans or pass the cost on to employees. Similarly, saying it will affect only "3% of premiums in 2013" is designed to obscure the fact that it will hit a lot more policies in 2020. But this is one of those cases when bad arguments mask a good policy, rather than the other way around.
No one defends the tax exemption for employer-sponsored health insurance in principle. They only defend it in practice. The excise tax has its opponents, but none of them say we should make food, or broadband Internet, tax free as long as it is provided by employers. You don't even hear them demanding that the bill make non-employer-provided health care tax free. No one, in other words, is interested in expanding this arrangement to other sectors, or even to the rest of the health-care sector. But given that the tax exclusion for employer-provided health care amounts to a subsidy worth about $250 billion a year, it's got a lot of defenders.
As a final note, the excise tax is a substitute for simply capping the employer tax exclusion. The swap came about because the politics of the excise tax are superficially better: Rather than taxing "workers" or "businesses," you're taxing "insurers." But insurers pass the cost along, of course. And the excise tax is more regressive than capping the exclusion. If you cap the exclusion, people get taxed at their normal marginal tax rate, which is virtually nothing for low-income workers. The excise tax, by contrast, is a flat surtax of 40 percent, no matter what your income. In this case, making the tax sound more populist also made it substantially more regressive. One way to "fix" the excise tax would be to convert it back into a cap on the exclusion, but there's not been much interest in that.
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