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Living la vida vespa

vespa.JPGThe fact that people are used to getting tax-free health-care insurance from their employers has a tendency to obscure what a weird and distorting policy that is. Take this analogy from Matthew Yglesias:

Suppose I proposed a law saying that if an employer buys a Vespa for an employee, then the employer can deduct that as an expense, but the employee doesn’t have to pay income tax on it. I don’t think it would be controversial to say that this law is going to increase the number of Vespas people own, but isn’t going to increase the total share of GDP that goes to employee compensation.

To complete the analogy, imagine that we called that Vespa a "transportation bonus," much as we call insurance a "health benefit." And imagine workers don't think like labor economists and feel more like they're haggling over a bonus than deciding the amount of compensation that will go to wages vs. Vespas. Workers would probably want the best Vespa possible, even if that Vespa is considerably better than what they'd buy if they were paying out of pocket. So it's not just that you'll have more Vespas on the street, but costlier Vespas.

Photo credit: By David Fischer/The Washington Post

By Ezra Klein  |  January 8, 2010; 3:09 PM ET
 
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Comments

didn't all the bankers say that their customary compensation included their bonus? Probably not so many Vespas there though.

Posted by: gagkk | January 8, 2010 3:38 PM | Report abuse

Again you're using the opposite example. A correct analogy is, say, your boss stopped letting you expense office supplies, would he raise your salary. My N=1 study found that he didn't.

Posted by: bmull | January 8, 2010 3:40 PM | Report abuse

This is a crappy analogy. Health care is not like a vehicle and employers don't give workers a choice of taking healthcare or taking the extra salary that health care costs.

Posted by: srw3 | January 8, 2010 3:46 PM | Report abuse

Although I agree that the tax expenditure for health insurance is silly, this is a pretty crappy analogy. Although sometimes it is badly designed, the theory behind our system of individual income taxation is that people should pay taxes based upon their ability to pay. Typically the best measure of that is income, but there are certain circumstances in which a high-income person has a lower ability to pay taxes than a person with lower income. One notable circumstance is having lots of dependents which is why we offer tax breaks for people with dependents. Another is being sick, having a pre-existing condition, a high-risk job, or any other circumstance that would cause your health care costs to be extremely high. Vespas are not a necessity, no sub-population NEEDS to spend a large portion of their income on vespas.

Posted by: troeper | January 8, 2010 3:58 PM | Report abuse

Previous thread comments have trashed the thesis behind the excise tax. What I don't understand is why some, including the President, can't see that passing a health plan that increases costs and reduces benefits for lots of people is bad politics.

Posted by: AuthorEditor | January 8, 2010 4:00 PM | Report abuse

What? In the real word you wouldn't get a choice of which vespa you want, you'd be lucky if you got to pick the color. Who here has ever haggled over a bonus?

Posted by: obrier2 | January 8, 2010 4:01 PM | Report abuse

obrier2, maybe few people haggle over cash bonuses, but plenty of people (or their union leaders) haggle over more generous health insurance plans, or maybe vacation days. The distinction being made is between the base salary and the "bonuses" on top of that base.

Posted by: MosBen | January 8, 2010 4:09 PM | Report abuse

Yeah this really is a poor analogy. The difference between "if my kid gets sick can I take her to the hospital" and "let's see how cool of a luxury item I can get from my boss" is substantial.

The "bronze" and "platinum" health plans are materially different in ways that the low-end and luxury Vespa aren't.

Posted by: NS12345 | January 8, 2010 4:25 PM | Report abuse

This post reveals total ignorance of the role of unions in the history of this country. One reason for the rise of unions is because its workers were employed in physical jobs that took a huge toll on the body. Hence the drive to provide them with the best of health care.

Of course, when un-unionized young bloggers' main health issue derives from a sedentary posture, one can understand why they have no understanding about why unions and unionized workers are outraged at the excise tax.

Obama's support for the excise tax is just one more nail in the coffin of flip-flopped campaign pledges. It will come back to haunt every dem that votes for it. It is political suicide, and a death knell for democratic party.

And the whole catch-22 debate around health reform financing points to why a form of single payer is the only rational, and politically palatable solution. Single payer is the only solution that doesn't continue a system wherein the push-pull between winners and losers (tax-wise) results in a perpetual motion swing at the polls (and in the polls), depending on who's losing.

Single payer, paid for similarly to Social Security and Medicare--a progressive payroll tax--is the only rational, and sane solution.

But then again, no one's ever accused Congress--or young bloggers--of being sane and rational.

Posted by: jc263field | January 8, 2010 5:05 PM | Report abuse

In over thirty years I've never had anything other than a take it or leave it option on my employment provided health care. (I've never had a union job though). In the late 80's or early 90's when rates started to rise I investigated getting my own policy and found out about pre-existing conditions.

So to complete the analogy you should add...

Unless you have a Vespa you or your family could end up destitute in the street or dead if you didn't have a Vespa available at all times, regardless of how much or little you use it each year. And, your employer says this is the Vespa we have available at this job, if you don't like it, go work somewher else.

This illustration doesn't work well. I still go both ways with the concept of the excise tax. Isn't there some way we could do both a small one on defined plans as well as some tax on high end earners or, god forbid, capital gains?

Posted by: prairiedaag | January 8, 2010 5:47 PM | Report abuse

If the Vespa is american made, subsidizing them might result in increasing jobs, wealth, and wages.

Posted by: kaylamom1 | January 8, 2010 11:07 PM | Report abuse

There's no social utility to you having a better Vespa, but there is social utility in having people have adequate health insurance so that they 1) do not have to do without necessary care 2) do not have their lives devastated by medical expenses 3) do not incur expenses which are shifted to other payers in the system when they cannot or do not pay. Based on my understanding, the 'basic' packages which will be mandated/subsidized under HCR fail on at least two of these points.

In a modern economy, health care is a utility, not a consumer good. The tax treatment issue is a smoke screen for our inability to grapple with the question of what the definition of adequate, affordable health is, and how each person's share of the cost of that care should be determined.

Posted by: exgovgirl | January 9, 2010 12:50 AM | Report abuse

Here in the UK, I can think of two similar schemes (to the Vespa thing):

There's a government program(me) called Cycle-to-Work (run through CycleScheme, I think) that offers tax-free bicycles to employees of participating companies.

Also, many large companies in London offer some form of subsidised season-ticket loans for transport (ie, either for the London ticket or the train ticket to London).

Posted by: hutchie6 | January 9, 2010 5:18 AM | Report abuse

That's 'La _Vita_ Vespa', sonny.

Posted by: leoklein | January 9, 2010 7:16 PM | Report abuse

I came upon and started reading this blog during the run up to the election. Now I come here when I feel my blood pressure is running too low or for a laugh.

I presume EK would agree that food and clothing should be subject to sales tax. What exactly is the correlation between a vespa and health insurance? Heath insurance benefits are not taxed because they have been seen as a necessity, kind of like food and clothing.

Only an idiot would argue that wages will go up when benefits are cut.

--David

Posted by: davidring | January 9, 2010 8:54 PM | Report abuse

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