More Wonkery on the Excise Tax

So of course yesterday I do a big wonky post on the excise tax proposed by the Senate Finance Committee, and today Ezra Klein hits it twice and CBPP does a nice, detailed examination. For some serious detail, I’d check out the CBPP piece, but knowing that my readers probably won’t do this, I’ll just hit on a few things I didn’t touch yesterday.

First, and most important, it’s worth stressing that the reason the Joint Committee on Taxation expects the measure to raise some $200 billion over 10 years is because people won’t actually pay the tax. Instead, policy makers are counting on the fact that rather than subject employees to a 40 percent marginal tax on highly generous benefits, employers will instead opt to provide lower cost plans. Accordingly, employers will plow a greater share of compensation into wages, which will in turn be taxed as income, fueling Federal revenues. This is also precisely the reason policy makers expect the tax to slow cost growth in the health care system. By limiting incentives for people to seek more and more inefficient or wasteful care, total costs will come down.

Second, the reason the tax is politically attractive — at least inasmuch as it is attractive at all — is because it’s a tax on the providers of the plans themselves. Basic economic logic suggests that insurers will simply pass the cost on to employers and consumers, much in the way we the gas tax is passed to consumers, but it allows policy makers to plausibly say it’s just a tax on the evil insurance industry. If more Americans had a better understanding of public policy, I doubt legislators would be able to get away with this, but then, if my aunt had balls, she’d be my uncle and so on and so forth.

Finally, it’s true that this tax is in some ways regressive as a union member with a dangerous job and thus generous benefits will be taxed at the same rate as a Goldman Sachs employee, but it can still be viewed as a broadly progressive measure. For example, Ezra Klein (gotta stop with this — that’s 3 links in one post) posts a commenter’s point that those people who don’t currently receive benefits through employers are already paying taxes on their health care, and what’s more, are funding the tax exempt insurance of people who do get coverage through their employers. This wouldn’t remove that problem, but in conjunction with subsidies and access to insurance exchanges, should go a long way towards leveling the playing field. Finally, there are a number of provisions to exempt people who have dangerous jobs which you can read about here.