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Cynicism on the excise tax

"Unions get a special two-year exclusion from the [excise] tax," comments Megan McArdle. "Presumably, the unions plan to go back and get their exclusion extended every few years." Tyler Cowen agrees with her, commenting that this will "increase the rate of unionization … and increase union support for Democratic candidates, a win-win, no?"

I'm not about to pretend that the union deal was anything but interest group politics. But I will observe that people seem much more upset about interest group politics when the interest group in question is a liberal one. This bill is thick with transition periods. The insurance regulations don't hit until 2014. The individual mandate doesn't fully present until 2016. The Medicare Commission takes a long while to get off the ground. Exchanges aren't open to larger employers until 2017.

Moreover, the structure of the excise tax is one long transition period for everybody: At $24,000, it will hardly be noticeable. It will affect fewer than 3 percent of the plans in the market. But that $24,000 grows more slowly than medical costs, and so it will hit more people over time.

But if you think that the administration will simply give up on the excise tax -- which does them virtually no good in the first 10 years anyway -- why is it in there at all? It's unpopular with their allies and wins them no friends among their enemies. Indeed, it's easy to see why so few presidents attempt cost control: You get hammered by the people who usually like you and dismissed by the people who usually like cost controls but don't fundamentally trust you. That leaves you with, well, virtually no one.

Even so, the cynicism is bafflingly divorced from the fundamentals of the situation. Extending the union exemption will require 60 votes in 2018. It's a pretty safe bet that Democrats won't have those seats. It's an even-odds bet that they won't have the presidency. Whoever is in power will want the money that taxing union plans gives them. So I join Matt Yglesias in wondering where McArdle and Cowen think that pro-labor coalition is going to emerge from.

By Ezra Klein  |  January 15, 2010; 10:53 AM ET
Categories:  Health Reform  
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Comments

I don't get it. If you work for a government entity or for a labor union, you get the exemption. If, like the majority of folk, you work for yourself or for a store or a company (non-unionized), you get nothing. How can they get by with this?

Posted by: gene4655 | January 15, 2010 11:10 AM | Report abuse

The problem people have is not with transition periods themselves. The problem is with transition periods that favor certain groups of people (unions) over others. Protecting unioninzed goverment workers is even worse since they already make 1/3 more than the average in the private sector.

I also think people have a problems with your seemingly "evolving" view on the issue. Seemed like you were against any special treatment for unions in the past and now you seem ok with the special treatment.

Posted by: MBP2 | January 15, 2010 11:12 AM | Report abuse

I enjoy reading Megan as I think she is the most balanced of the right wing bloggers and she affords me a chance to see the other side of issues.

However, her ideology does get ahead of herself sometimes and this would be one of those times...."unions bad".

To your point, the modification of the tax is slight, the tax will not impact many plans for awhile anyway and this just gives unions a little more leeway to extract wage concessions in lieu of benefit changes. i would assume labor wanted the extension given that we are in a U or L shaped recovery and wage concessions will be difficult in this environment.

Posted by: scott1959 | January 15, 2010 11:13 AM | Report abuse

the point is that liberals complain about the "transition periods" of waiting for the exchanges to be set up yet explain away with "CBA's are reallly long" to explain away this give-away. Conservatives wrongly do the converse. For either to not point out the issues of the others are wrong. At very least you're admiting it as a give-away. What you should also do Ezra is explain WHO is also hurt by this. If you're not in a union or your job doesn't afford you access to a union (small business owner) then you're absolutely shafted by this. You're paying tax while a union member doesn't have to. You could use no healthcare benefits at all and yet you're taxed because the union member is running to the doctor for every little sniffle because of HIS cadillac plan that he's not paying for.

That's who you should stump for Ezra. That's who should be crying foul today. Unions just seperated the middle class into union middle class and non-union middle class.

Posted by: visionbrkr | January 15, 2010 11:18 AM | Report abuse

"I'm not about to pretend that the union deal was anything but interest group politics."

If that is the case then instead of posting about this silly, cynical comment from McCardle why not address Igor Volsky who seems to think this is good policy with noble intentions:

http://wonkroom.thinkprogress.org/2010/01/14/unions-exemption/

Posted by: ab13 | January 15, 2010 11:31 AM | Report abuse

I note that no one has pointed out the reason for the union transition periods: because their compensation deals were negotiated with the current taxation system in mind. By 2017, the unions will negotiate a new compensation package under the new rules.

The rest of you non-union workers already proudly accept that you operate under a set of workplace rules and compensation regimes that can change at any time for any reason, so what are you complaining about? If you wanted to work under another system, you would have unionized and supported politicians who support that.

Posted by: constans | January 15, 2010 11:33 AM | Report abuse

Ditto as 'scott1959' - I do find Megan reasonably good 'foil' to Ezra....

Having said that I think both she and Tayler Cowen are wrong, surprising lack of economic dynamics of this country, to speculate that Union Labor would increase in future. Just look at last few years of union membership - on verge of extinct. Even if new employment comes in new manufacturing industries; those are in different context unlike 'auto / steel' industry where militant Labor evolved. More for sociological reasons and context of new manufacturing structures, their market; I think it will be hard to have old style Unions. I am really surprised that folks miss on this one.

Further, even if some kind of unions do emerge; those will be of labor pool scattered over small numbers in variety of industries across multiple states. May be Service Employee Union could be the model there. Not much AFL-CIO kind.

The danger of government folks getting into Union is there (which they are today in some sense already). If it evolves into Illinois, NY or CA style militant state employee Unions; that can be a big problem. But we are long, long way from that to happen. There is much more higher probability meanwhile that America will succumb to one more Financial Crisis (as our JPM boss Dimon admitted yesterday!)

Indeed is it okay to have power club of Bankers and their influence on Congress but not okay of Labor Union?

I detest Labor Unions and have seen very closely how they destruct industries and livelihood. But it is no different than our polished Jamie Demon and Lord Blankefein from Wall Street. However, I do not fear Labor Union. Generally Politics of last century shows that we can over come those issues (Regan, Thatcher, fall of Soviet model, etc.); but I FEAR the Wall Street Gang. We do not have any successful model there, except the last one by FDR. Even high credential Obama fails at that - to control Wall Street - what chance we Americans have to hope that it could be any better?

So why worry about Labor Union? There are far more dangerous sharks in the water...

Posted by: umesh409 | January 15, 2010 11:36 AM | Report abuse

Today's Ezra:

"I'm not about to pretend that the union deal was anything but interest group politics."

Yesterday's Ezra:

"it doesn't hit union plans until 2018, which gives them time to renegotiate their contracts."

Posted by: wisewon | January 15, 2010 11:37 AM | Report abuse

First, let me say that I'm not asking snarkily.

Ok, now maybe I'm missing something, but isn't the point that union workers work for larger businesses and are therefore not permitted into the exchanges, where cheaper plans not subject to the tax will supposedly be available. Self-employed people, or those employed by small businesses, will be allowed into the exchanges from the get-go, meaning they'll be able to get rid of the expensive plan, they've got now and avoid the tax. The reason for allowing self employed/small business people into the exchanges earlier is because they can't, unlike a larger union or business, negotiate the types of plans (and how generous they are) that are available to their members. The exclusion for unions is justified on the grounds that the unions, whose members can't get into the exchanges right away, need time to renegotiate their healthcare deals in order to ensure that moves to the exchanges are accompanied by wage increases.

Like Ezra says, it's clearly a buy-off of labor, but that doesn't mean there's not a rational justification for thier worries, or that everyone else is necessarily getting screwed.

All that said, if I've missed something I really would like an explanation.

Posted by: MosBen | January 15, 2010 11:38 AM | Report abuse

Gene4655 writes:

"I don't get it. If you work for a government entity or for a labor union, you get the exemption. If, like the majority of folk, you work for yourself or for a store or a company (non-unionized), you get nothing. How can they get by with this?"

Gene - you have bad information.

If you work for yourself, you are 100% free of the excise tax. It only applies to employer-provided plans.

If you work for a non-union employer, odds are your medical benefits alone cost nowhere near $24,000. Plans this expensive have no co-pays and no out-of-pocket limits and include gym memberships and massage. If that's the plan you have at work, then I don't think you should be getting a government subsidy for the full value of the plan!!!

Posted by: mdg1111 | January 15, 2010 11:51 AM | Report abuse

mdg1111,

if you are a small employer with say you and your spouse as the employees (what many of the smallest small employers do to get "group rates and benefits" then you are absolutely affected by this. Oh and if you're say 55-64 years old and healthy not only are you taxed because of your high premium you may not even be using your benefits.

There are also absolutely plans out there that cost $24000 a year for family coverage now and in 2017 there will be a lot more with the way costs are going. high costs are not reserved for unions and their cadillac plans. Those age 55-64 are negatively affected by this and the self employed that purchase group coverage (listing their spouse as their "secretary") are the ones that will be paying the brunt of this.

Posted by: visionbrkr | January 15, 2010 12:07 PM | Report abuse

*Those age 55-64 are negatively affected by this and the self employed that purchase group coverage (listing their spouse as their "secretary") are the ones that will be paying the brunt of this.*

There's also an exemption for plans that are very expensive due to the age of the customer.

Posted by: constans | January 15, 2010 12:23 PM | Report abuse

I wonder how the legislation will determine what counts as a collective bargaining agreement? It seems to have high loophole potential.

On the other hand, let's just get it over with and treat all health benefits as taxable income. We need to stop hiding the costs. Third party payer sucks.

Posted by: staticvars | January 15, 2010 12:36 PM | Report abuse

"I'm not about to pretend that the union deal was anything but interest group politics. But I will observe that people seem much more upset about interest group politics when the interest group in question is a liberal one."

Ezra, you are the worst kind of fraud. The conservative or republican interest groups favored in this bill would be.....? Tort reform? Oh, no, I forgot, no tort reform of any kind is included.
Where exactly would I find these conservative interest groups that this bill favors. Those that you say that no one complains about?

And what a worthy liberal cause, unions, and look at the noble manner in which this deal was struck.

How do you look yourself in the mirror in the mirror each morning? And how do you feel, having abandoned any pretense of journalistic integrity at such a young age?

One can only hope that you live long enough to to see all the myriad costs (direct financial, loss of freedom, crushing debt, human suffering) this bill will impose on this nation and come to realize that you were complicit in inflicting this damage on our country by purposely obscuring the truth.

Posted by: jcp370 | January 15, 2010 12:40 PM | Report abuse

"This bill is thick with transition periods." etc. etc.


Well, yeah. They had this little "deficit neutral" fiction to maintain. Not to mention that their ineptitude in managing Cash for Clunkers and distribution of the stimulus pork would make it advisable to prolong for as long as possible the implementation of an actual program.

Posted by: bgmma50 | January 15, 2010 12:51 PM | Report abuse

One of the biggest problems I see with this deal is that collective bargaining agreements have tended to set the standards for employee benefits in all sectors. As a result, whether or not they are unionized, most public workers have comparable benefits. The academics who support the Cadillac tax must not have examined their own plans very carefully because they would have realized that they mirror the plans for bargaining units on the same campuses. Those folks are going to be surprised when it turns out that their plans will have to be scaled back.

I don't see how the tax can do anything its supporters claim when a) a large segment of the target is exempted and b) the plans themselves are expected to be taxed out of existence. A tax that neither raises money nor promotes desirable behavior (most health*care* experts do not consider avoiding needed treatment due to higher out of pocket costs as a desirable outcome) is just an unnecessary addition to an already overcomplicated tax code.

Posted by: Athena_news | January 15, 2010 1:00 PM | Report abuse

*Those age 55-64 are negatively affected by this and the self employed that purchase group coverage (listing their spouse as their "secretary") are the ones that will be paying the brunt of this.*

There's also an exemption for plans that are very expensive due to the age of the customer.

Posted by: constans | January 15, 2010 12:23 PM | Report abuse

So wait then who IS affected by this? If the excise tax was supposed to garner $140 billion (if i remember correctly) and unions are $60 billion (as estimated by Trumka) and the 55-64 crowd for example another group then who IS paying for this? Who WILL pay the excise tax? Goldman Sachs? WHo else? They can't be $20-$40 billion of excise tax can they?? Who didn't pay enough for the election of 2008?

And if the excise tax as CBO put it is a vital part of changing the structure of benefits and it goes basically unused then exactly how are we cutting costs? If we promise all these grandiose reforms and then back off back to the current and just end pre-ex then exactly how is cost coming down? I can't wait for the next CMS report. I'm guessing it'll be a doozy.

Posted by: visionbrkr | January 15, 2010 1:41 PM | Report abuse

Generally, when Megan McArdle makes a prediction the opposite occurs. So I take this as excellent news for the excise tax.

Posted by: zosima | January 15, 2010 2:43 PM | Report abuse

So, the unions are all for health care reform, and universal health care, EXCEPT when it means a tax on them, or losing any of their sweet benefits for the sake of the bill, or those who need insurance? Sounds a lot like the trial lawyers pushing for reform - Only as long as tort reform doesn't happen.

Notice how the ones saying NO to this fiasco are the ones actually getting the bad end of the deal - the majority of Americans - while those who give nothing, or very little, or even get A LOT (like trial lawyers getting millions of new clients, and drug companies getting millions of new consumers) are saying - Hey, YEAH, this sounds like a great thing - good for the people!! But only until they have to give something, or face a tax themselves - then it's FIGHT back.

Posted by: Jodigirl | January 15, 2010 4:20 PM | Report abuse

C'mon Ezra, do the math. 3% of plans? If we're to believe today's news reports, the union exemption will reduce tax collections from the tax to "only" $20 billion a year, not the $35 billion previously projected for 2019. Okay, what's your conservative projection for how much per person in each plan it will cost? How about 40% of an average of $2,000 over the threshold or $800. Divide $20 billion by $800 per person/household and you have 25 million households. At an average of 2 persons per household, that's 50 million people or one in every six in America (perhaps one in seven by 2019). Think $2000 over the threshold is too high? Drop it to $1000 and you're up to 50 million households.

Posted by: GoozNews | January 15, 2010 6:58 PM | Report abuse

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