Politics

A Tale of Two Taxes

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For those who've been watching health care reform closely, it's long been clear that, with the possible exception of abortion funding, the biggest difficulty in reconciling the House and Senate versions of the bill would be the financing. Funds freed from Medicare cuts (which many view with skepticism) will only "pay" for a portion of the nearly $1 trillion in new spending expected over the first 10 years of the bill. That means that in order to fund the rest of the bill's new spending, Congress has to rely on additional taxes and fees. But the two bills do so in very different ways.

The House raises a significant amount of revenue to pay for the bill through a tax on high-earners — couples who earn more than a million dollars a year and individuals who earn more than $500,000. The Senate version, however, generates money through a 40 percent excise tax on so-called "Cadillac" health care plans — health and dental insurance that totals more than $8,500 for an individual or $23,000 for a family. 

Right now, the Senate's excise tax is expected to win out, in part because the Senate's 60-vote coalition is more fragile, and in part because President Obama supports the provision. This creates two difficulties for Democrats. The first is that, because that tax would hit millions of middle-class families, it breaks Obama's promise not to raise taxes on those making less than $250,000 a year. Given Obama's casual willingness to break campaign pledges, though, this is the lesser issue.

The bigger problem is that the excise tax has labor leaders absolutely livid.  Over the years, many of their members have forgone additional wages in order to secure expensive benefits packages that the excise tax would penalize. They haven't yet said publicly that they're ready to kill the bill, but they're letting the White House know that they're very, very unhappy:

President Obama told labor leaders in a tense two-hour closed door tussle over whether to tax health care benefits that he backed the tax, which labor leaders vehemently oppose, but also supports efforts "to protect working men and women."

Their problem? Labor leaders say you can't have it both ways. Some now openly accuse Obama of doing that and violating one of his most important early promises in the health care debate: that if you like the coverage you have, you will be able to keep it.

…"The senate bill instead drives a wedge between the middle class and the poor," [AFL-CIO President Richard] Trumka said in a speech at the National Press Club just hours before the White House showdown. " The senate bill taxes the middle class by taxing workers health plans. The Senate bill pits working Americans who need health care for their families against working Americans trying to keep health care for their families. Now this is a policy designed to benefit elites."

Significantly, Trumka did not threaten to torpedo health care reform if the Senate excise tax survives intense negotiations with House Democrats over a final bill.

This is a serious problem for Obama in specific and for Democrats trying to pass health care reform in general. But I don't think it's unresolvable. Throughout the course of the health care debate, Democrats have shown a willingness to bribe buy off negotiate with any individual or organization that stood in the way of their plans. And it looks like that's just what's going to happen here. From TPM's report on the meeting between labor leaders and administration officials: 

"My understanding it was really discussions surrounding policy fixes that could, to at least try to delay the impact and look at maybe raising the threshold a little more," said one top labor official briefed on the meeting. 

"Secretary Sebelius was there for part of the discussion," the official went on. "They are exploring, at least, some modifications that might take into account some collectively bargained plans, maybe trying to tie some exclusion for plans that are covered by a collective bargaining agreement."

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  1. Labor leaders say you can’t have it both ways. Some now openly accuse Obama of doing that and violating one of his most important early promises in the health care debate: that if you like the coverage you have, you will be able to keep it.

    The reply to that is that Obama was not serious when he promised that. The underlying intentions for this bill is to impose a government-run system.

    Like nancy Pelosi said: Many things were said during the campaign trail. That is: Many lies were told, boys and girls.

    1. Old Mexican,”The underlying intentions for this bill is to impose a government-run system.” The intent is primary and I am all for competition. Good luck insurance companies.

      1. The intent is primary and I am all for competition. Good luck insurance companies.

        Maybe I am misreading you but are you implying that the health insurance industry currently operates in a competitive marketplace and suffers from lack of competition? I highly doubt there is a more atomistic sector in the economy.

        1. swillfredo pareto, we will all benefit when insurance companies are forced to compete. Btw, I am sure you can teach us all about the marketplace. Anyone who can spend over 600 a day for a hotel room and then fail to pay a $2.00 single-ride fare ticket is fascinating.

      2. The level of ignorance here is astonishing. Do insurance companies have the ability to seize money from you to subsidize their operations? Then it’s NOT COMPETITION TO HAVE A GOVERNMENT PLAN. Good god people try to think rationally just one or two minutes a day, that’s all I ask.

        1. Not until the bill becomes law.

        2. nmg,the level of genius here is astonishing. Insurance companies have the ability to “seize” (they call it premiums) money from you to subsidize their operations. It will be competitive when we have a government plan. Good god people try to think rationally just one or two minutes a day, that’s all I ask. Well, I would add to get the fuck over the libertarian idea of me, myself and I

          1. Fuck off, Edward. Or Morris. Or whatever you’re calling yourself these days.

            1. .,this is God talking and if you think of yourself as a . now just….

  2. Don’t be surprised if you get BOTH taxes.

  3. I read in the San Juan Mercury News, on page 4, way within the article, that the tax on so-called Cadillac insurance (which will end up becoming all employer-given insurance) will be about 40%, and that such will bring in about 140 billion or so of much needed money to pay for the bill.

    It goes without saying that at such huge price, many people will simply drop their insurance and go with the State. This is what the Union bosses were talking about, since they promised THEIR members that their plans would not be touched.

    With a 40% tax, you can kiss your coverage goodbye. Welcome to Amerika.

  4. some modifications that might take into account some collectively bargained plans, maybe trying to tie some exclusion for plans that are covered by a collective bargaining agreement.”

    Ah yes. That will be really popular. A special tax that applies to only to people who aren’t in unions.

    Still, no union calls to vote again. Abortion may still be more controversial, then. When it’s an issue of money, you can always just keep paying people off.

    1. It’ll be another thing to challenge in the courts. Things like Nebraska’s deal, government forcing a purchase for a free existence, this, the USSC is going to get sick and tired of hearing about it all.

  5. some modifications that might take into account some collectively bargained plans, maybe trying to tie some exclusion for plans that are covered by a collective bargaining agreement.”

    Ah yes. That will be really popular. A special tax that applies to only to people who aren’t in unions.

    Still, no union calls to vote again. Abortion may still be more controversial, then. When it’s an issue of money, you can always just keep paying people off.

  6. Right now, the Senate’s excise tax is expected to win out, in part because the Senate’s 60-vote coalition is more fragile, and in part because President Obama supports the provision. This creates two difficulties for Democrats. The first is that, because that tax would hit millions of middle-class families, it breaks Obama’s promise not to raise taxes on those making less than $250,000 a year. Given Obama’s casual willingness to break campaign pledges, though, this is the lesser issue.

    Meaning, he has absolutely no qualms about breaking promises he made several times during the campaign.

  7. President Obama told labor leaders in a tense two-hour closed door tussle over whether to tax health care benefits that he backed the tax, which labor leaders vehemently oppose, but also supports efforts “to protect working men and women.”

    Does this mean that the bill would not protect NON working men and women, or is Obama showing his knack for double speak?

    1. I interpret it to mean, “If you aren’t in a union, you arent a ‘real’ working man or woman.”

  8. Even though a ton of people (read: constituents) absolutely fucking hate it, the Dems and Obama just gotta push something through. For some reason.

    These people are going to get slaughtered in the 2010 midterms, but by then the damage will probably have been done.

    I don’t get why they are so desperate to destroy themselves. They make the GOP look sane. Is it for “legacy” purposes? Just to have pushed something through over the GOP? Because the President wants it? I don’t get it.

    1. Nope – you’re wrong.

      As odious as this health “reform” bill is it will serve as a marker – a table bet on further reform.

      As a libertarian, I despise the anti-trust exemption insurers now regale under.

      I know – some “libertarians” jack off at the thought of a monopoly (see the ISP monopoly herd) – but I disagree.

      I WANT competition. Competition is good.

      Wellpoint, Aetna, etc didn’t get to be multi-billion $$ entities by working in one state only… They cross state lines anyway – its more conservative blather.

      These guys need to compete – not collude.

      1. As a libertarian, I despise the anti-trust exemption insurers now regale under.

        Which they have because of their extensive regulation.

        I know – some “libertarians” jack off at the thought of a monopoly (see the ISP monopoly herd) – but I disagree.

        But the ISP monopolies and duopolies are because of exclusive government franchises. They aren’t because of Free Enterprise. They’re because of regulated systems.

        They cross state lines anyway – its more conservative blather.

        It is misleading, but there’s a real point. It’s about evading the mandates placed by each state. The insurance companies cross state lines, but they have to offer special NY plans only in NY, to satisfy those laws, and so on everywhere else.

        These guys need to compete – not collude.

        The state insurers set what rates the companies are allowed to charge. That is always a recipe for collusion and regulatory capture. So long as the government details exactly what each must cover, and approves their rates, that makes collusion more likely.

        You claim to want competition, and I believe you, but you seem to favor policies that lead to the opposite of what you claim.

        Your “marker” for further reform will be one of even less competition, even more directly or indirectly government run insurance. It will be all collusion, or just all government-run.

        Please explain to me what your solution is, since you just seem to propose policies that do the opposite of what you want. Or else waste time pretending that exclusive government franchises or heavy regulation is Free Enterprise.

        1. Excellent rebuttal post, John Thacker.

          Yours is an admirable discourse.

          Ok – I favor the notion of a Public Service Commission like the utilities prosper under.

          I think we are moving toward a public service health insurance industry.

          Rates will be regulated and service will be minimally guaranteed. This approach has not hurt ConEd or the Southern Company.

          Right now millions are shunned by the market due to age or condition. That is not a market – as in bids and asks.

          We need a fluid market with bids and ask prices.

          1. No, it’s not so much about evading the state-by-state mandates as it is about forcing patients to buy within a limited pool.

            If I live in New York, why shouldn’t I be able to drive to New Jersey, but some insurance, and then use it at a NY hospital?

            The only way state insurance mandates can be implementd is basically by turning people away from hospitals if they have insurance from another state. they have to actually tell the insurance companies “Sorry, you CAN’T reimburse this person who paid you money, they live in the wrong place. ” And tell hospitals “Sorry, you can’t charge AETNA for this procedure, because the plan was sold in a different state. You have to force the patient to pay out of pocket.”

            How is that moral or fair?

            1. Speaking of which, if I really want insurance, I suppose i could go find a bookie and ask him to take a small monthly bet on the possibility that I’ll get cancer. Who is going to stop him from paying me if it happens?
              Fuck, he didn’t promise me free mammograms! It’s illegal!

      2. So, when Blue Cross and Capitol Health both vie for my business with Aetna, this is monopoly? I do not think that word means what you think it means.

      3. I know – some “libertarians” jack off at the thought of a monopoly (see the ISP monopoly herd) – but I disagree.

        This “reform” will make it more like the ISP monopoly/duopoly situation. Those are anything but free markets. They are heavily regulated companies with exclusive franchises.

        The reason we have duopolies instead of monopolies most places is only because regulators have let the exclusive government franchise telecom monopolies and the exclusive government franchise cable monopolies compete in each others’ original market as well as in the data line business.

        1. Don’t forget the tobacco industry! Federal regulation under the guise of public health has effectively wiped out any competition that might threaten the big tobacco companies. To be honest, I see both sides to the whole net neutrality argument, but when there’s no clear-cut winner I cast my lot with the option that involves the least regulation because case after case has shown that as soon as the government starts to “protect” the consumer, the biggest corporations are able to tweak the regulation to protect THEIR interests. See also, The Consumer Product Safety Improvement Act of 2008.

    2. Epi:

      I’ve always thought that the Pro-Government case for anything has relied heavily on having the “right people”. The worst thing in the world is to have competent government expansionists. It doesn’t happen often, but when it does, it can take generations for the bureaucracy to ossify.

      At this point, even the expansionists agree that the current administration couldn’t find competence with turn-by-turn instructions. Nobody believes that Obama could find the people to run government healthcare anywhere but into the ground.

      Unless you’re hubristic enough to be part of the current inner circle. In which case, you’ve pledged your life and fortune (having long ago sold your sacred honor) to “getting this done”. Well, hubris always ends the same.

    3. I don’t get why they are so desperate to destroy themselves. They make the GOP look sane.

      As it’s been said — come what may, sooner or later the Republicans will screw the pooch again (you know, small furry ears and all). And people will vote them out again and the Dems will be back. Then they can shove the next installment of their Big Plans down our throats.

      There are only two major parties. We all can bitch until the cows come home, but there are still only two major parties. Something like a duopoly.

  9. Free healthcare costs a lot of money. Americans will learn that in the coming years.

    Just out of interest does anybody sincerely believe this BS about it being “free”? $1,000,000,000 is not free people!

    1. You are off by three orders of magnitude.

      1. Maybe his ‘0’ key just gave up in despair.

      2. Damn, I wasn’t paying attention there! It never occurred to me I would ever type $1,000,000,000,000. F me, let me type that again just to make sure I’m awake: $1,000,000,000,000.

        1. Personally, I suspect that Obama’s rampant spending is all one big ruse to teach Americans to use scientific notation. $10^12 is so much easier.

          1. I agree. Obama’s sole reason for seeking office–his sole reason–was to force Americans to use scientific notation in daily parlance.

            1. Apparently there’s a bumper sticker around, along the lines of: “Don’t tell Obama what comes after a trillion.”

      3. I also never though I’d type a billion dollars out before somebody points out I’m three orders of magnitude out. This is just surreal.

        BTW if that’s a one off name there I don’t think correcting somebody who mistakes billion for trillion is a case of pedantism. (But for politics)

  10. But only evil rich people will pay for it! So it’s free for the rest of us, right?

    1. CLASS WAR

      1. You know what? If I have to pick sides, well, get me a yacht.

        1. Have Gilligan fetch you another coconut martini, too.

  11. “…maybe trying to tie some exclusion for plans that are covered by a collective bargaining agreement.”

    Soooo, we’re abandoning any pretense of trying to pay for this lunacy?

    1. Once the government owns the whole industry, it won’t matter how it’s paid for because it comes out of taxes anyway.

      1. You mean, except for the tiny extra slice necessary to pay the salaries of the bureaucrats who manage the transfer from taxpayer to insur-a-co? Whoops, also the tiny extra slice necessary to buy off this or that Senator’s pet constituency. Oh, and fund a new wing of John Murtha’s personal airport. Er….and maybe support Tom Harkin’s Research Institute into Laetrile, Crystal Healing, and other alternatives to actual medicine.

        But what am I worried about? It’s not like recently there’s been a case of government throwing a trillion dollars down a rathole with pretty much zip to show for it…

        1. Fact is, we can’t pay for it. So why bother pretending anymore?

          Soon enough, dollars really will be free.

  12. Looks like Google might be pulling out of China.
    http://googleblog.blogspot.com…..china.html

    I guess the evil company might have found its limit.

    1. About fucking time. Do less evil.

      1. Want to see something odd about Google? Type in “Christianity is” and read the suggestions. Then try it with Judaism is, Buddhism is, Catholicism is, paganism is, etc. Finally, try it with Islam is. Big difference, huh?

    2. HAH HAH HAH HAH HA!

      All is forgiven Google, all is forgiven!

    3. Sad it takes a spelling error to get those results, the correct spelling still seems to be censored. Nice one anyway.

    4. Always the same, they compromise their principles then get offended when the john haggles over the price.

  13. bit of a thread jack, but this seems somewhat important or at least interesting.

  14. I would much rather have the tax on “Cadillac” (or whatever the fuck stupid buzzword you feel like using) plans than the income tax increase.

    First of all, although it’s not the approach I would take, this might actually get employers to stop offering comprehensive coverage for everything. And getting people out of the insurance racket and into paying out of pocket for more stuff will certainly help. So if this encourages employers to downgrade or drop their coverage, I can certainly see a silver lining.

    1. It’s not that simple. There’s a serious collective action problem here, viz.:

      Right now, the rate at which a medical care provider (“doc”) bills is way far above what he actually receives, averaged over his entire patient load. In part that’s because of Medicare and Medicaid, which routinely pay far below market rates, and in cases below the actual cost to provide the service. In part it’s because all the rest of the private insurance market play a weird little game, where the doctor bills (say) $300 but signs a binding agreement with the patient’s insurer to accept fully payment of, say, $150 from the insurer. That way, you see, when the insurer sends you your “Explanation of Benefits” you see that they saved you 50% off of your medical bill. Wow! Aren’t you glad you pay their (the insurance company) salaries? Didn’t they just save you a pile of money!

      Of course, they really didn’t. Since nearly everybody has insurance, nearly nobody pays the doc’s notional rate. And, indeed, he has to set his notional rate far higher than the rate at which he actually needs to be paid to stay in business, so that the insurance companies can play their 50% off game.

      It’s all fun and games — until you try to break out of the system. If only a few people try to go without insurance, they’re forced to pay the outrageous notional rate (the doc can’t reset the notional rate, because of course he’s prohibited by his contract from charging his cash patients less than his insurance patients — the best he can do is quietly forgive the debt). So those people would be utterly screwed.

      If everyone broke out of the system, all at once, then of course the 50% off farce would cease, notional rates would fall to actual rates, and you’d have more choice, whether to pay for stuff out of pocket, or make a bet with an insurance company.

      By me the most sensible possible solution to the problem would be to (1) remove the special tax-exempt status of employer-provided health insurance, and (2) prohibit direct contracts between insurers and providers as a collusive restraint on free trade.

      1. Also prohibit the AMA from restricting the supply of MDs. And while we’re at, throw the ADA in there too.

        Do those things and there’d be no need for any of this bullshit that’s going on.

        Which is why none of the things that should be done, ever will get done.

        1. I’d even go beyond that and advocate greatly loosening restrictions on who may provide basic medical care.

          As well as making it possible to sell off-the-shelf urine and blood tests. We do this for pregnancy tests, so why couldn’t we do it for strep throat or urinary tract infections? Maybe even STDs, and make the medications available off the shelf too. I bet the STD rate would drop dramatically if people didn’t have to embarass themselves at the doctors office to get treatment or find out if they had something.

          1. You make antibiotics over the counter you will see a very very bad health crisis. Biology trumps my libertarianism. Rates would not drop. Strains would become antibiotic resistant.

            1. That said, you could still have a specialist at the pharmacy vet you instead paying a doctor a hundred bucks.

            2. Has this actually happened in countries where antibiotics CAN be purchased over the counter?

    2. The best thing to do would be to offer the same tax write off to individuals for personal insurance that they get for employer-provided insurance.

      1. Well no, the best thing to do would be to stop tweaking the tax code and eliminate the employer deduction.

        The tax code should be simple and uniform, and not have a million deductions and credits for miscellaneous things the government approves of.

  15. What about black market healthcare? Cash, then service.

    1. How about black market health insurance?
      Perhaps Vegas should be putting out odds on the possibility you’ll get cancer. Over the internet.

      1. I’m pretty sure they couldn’t do any better than Met Life, NY Life or the host of other companies that make their living doing that.

        1. Really? MetLife, NYLife, et. al. are subject to all sorts of regulations requiring them to pay for free mammograms and such, and will shortly be forced to artificially fuck with your odds so that other people’s odds will be be rigged to let them win. Also, they’ll be forced to let people bet after they already have cancer and then take home the winnings.

  16. Re: Tony,

    I know you prefer market-based rationing. But it’s limiting demand on something whose demand is not based on what people want to pay but what people need to pay.

    Economically, there is no difference, Tony. You are however relying on emotional arguments. A price is an indicator of scarcity. If you have one MRI machine and 10 clients, and you cannot use the machine on more than one client at a time, the price for one MRI for one person will reflect this economic (and PHYSICAL) fact. The Price IS a rationing metric, it tells you just how much of something is available.

    If there are suddenly 20 clients for the same MRI machine, the subsequent price WILL reflect this – because the machine still handles only ONE client at a time. The higher price sends signals to other suppliers to get into the business of offering MRI services and invest in machines. So maybe ONCE the price of an MRI may be double than at other times of lower demand, but once other suppliers make their offer, the price comes down.

    Instead, a government-run system will not operate under a price system; the true demand for services may not be known, or more likely, may not be met, because investment will not depend on entrepreneurs but on budgets.

    The price system actually serves to SAVE lives because more machines or more services allocate through entrepreneurship to the places of higher demand.

    The marketplace makes a calculation on acceptable deaths too, and it is much less favorable to human life.

    Except that the market does nothing – the market being simply the name given to the network formed by everybody that freely trades. The decision is thus not centralized, but totally decentralized. Since the actors would be the same people that get sick, then the decisions are made directly by them AND their suppliers. Governments centralize the supply and cannot do more than guess on the demand – hence the long queues.

    1. Did I miss Tony here? How could I.

      Or did you invent Tony here? How could you.

      1. It’s a preemptive strike.

    2. I thought there were cases where government required hospitals to show a certificate of need to purchase MRIs, in order to prevent redundancy (and keep competition down)?

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