Cadillac Tax Versus Health Care Tax Deduction

A blog about business and economics.
July 2 2012 11:03 AM

Cadillac Tax Versus Health Care Tax Deduction

A number of people wrote in to express discontent that in my item "David Brooks Wants To Replace Obamacare With Obamacare" I wrote that the Affordable Care Act phases out the tax deduction for employer-sponsored health plans.

It's true that (largely in order to stay consistent with campaign rhetoric President Obama used against John McCain) it doesn't do that. Instead it imposes a new excise tax on unusually expensive employer-provided health care plans. But the key thing about it is that the definition of what counts as a "Cadillac" plan is pegged to the overall rate of Consumer Price Index inflation. That means that over time more and more plans will be subject to the excise tax, offsetting the impact of the deduction for employer-provided plans. They put this in the bill to get something the CBO would score as reducing system-wide health expenditures, and the CBO scores it that way because they think it's equivalent to phasing out the deduction.

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Now I think there are a lot of fair points you could make about this aspect of the Affordable Care Act. One is that in order to mollify labor unions, the pace of the phaseout was altered at the last minute to be excrutiatingly slow. Another is that the media largely failed to call out the Obama campaign for its demagogic attacks on John McCain over roughly this issue and then again largely failed to call out the Obama administration for switching sides in the debate but then adopting a workaround whose only real point is to let them avoid admitting this is what they did.

Still, as a matter of forward-looking policy, I think that what's going on here is that in order to stay "onside" in the political debate, a number of moderate conservative commentators are drastically exaggerating the extent of their disagreements with the law. Saying you think Obamacare's increase in taxation of investment income should be rolled back and replaced with more aggressive implementation of the excise tax is a far cry from positing a deep-seated philosophical disagreement with the overall approach. At some point, everyone had to look at the overall legislative package and decide if they were "for" or "against" it, and ever since that moment the debate about the specific elements of the progam has gotten extremely fuzzy and overly polarized.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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