[Marxism] Obama open to taxing health benefits

Louis Proyect lnp3 at panix.com
Sun Mar 15 08:18:54 MDT 2009

NY Times, March 15, 2009
Administration Is Open to Taxing Health Benefits

WASHINGTON — The Obama administration is signaling to Congress that the 
president could support taxing some employee health benefits, as several 
influential lawmakers and many economists favor, to help pay for 
overhauling the health care system.

The proposal is politically problematic for President Obama, however, 
since it is similar to one he denounced in the presidential campaign as 
“the largest middle-class tax increase in history.” Most Americans with 
insurance get it from their employers, and taxing workers for the 
benefit is opposed by union leaders and some businesses.

In television advertisements last fall, Mr. Obama criticized his 
Republican rival for the presidency, Senator John McCain of Arizona, for 
proposing to tax all employer-provided health benefits. The benefits 
have long been tax-free, regardless of how generous they are or how much 
an employee earns. The advertisements did not point out that Mr. McCain, 
in exchange, wanted to give all families a tax credit to subsidize the 
purchase of coverage.

At the time, even some Obama supporters said privately that he might 
come to regret his position if he won the election; in effect, they 
said, he was potentially giving up an important option to help finance 
his ambitious health care agenda to reduce medical costs and to expand 
coverage to the 46 million uninsured Americans. Now that Mr. Obama has 
begun the health debate, several advisers say that while he will not 
propose changing the tax-free status of employee health benefits, 
neither will he oppose it if Congress does so.

At a recent Congressional hearing, Senator Ron Wyden, an Oregon Democrat 
whose own health plan would make benefits taxable, asked Peter R. 
Orszag, the president’s budget director, about the issue. Mr. Orszag 
replied that it “most firmly should remain on the table.”

Mr. Orszag, an economist who has served as director of the Congressional 
Budget Office, has written favorably of taxing some employer-provided 
health benefits and using the revenue savings for other health-related 
incentives. So has another Obama adviser, Jason Furman, the deputy 
director of the White House National Economic Council.

They, like other proponents, cite evidence that tax-free benefits 
encourage what Mr. McCain called “gold-plated” policies, resulting in 
inefficient and costly demands for health care and pressure on employers 
to hold down workers’ pay as insurance expenses rise. And, they say, the 
policy discriminates against those — many of whom are low-income workers 
— who do not have employer-provided coverage.

When Senator Max Baucus, Democrat of Montana, advocated taxing benefits 
at a recent hearing of the Finance Committee, which he leads, Treasury 
Secretary Timothy F. Geithner assured him that the administration was 
open to all ideas from Congress. Mr. Geithner did, however, allude to 
the position that Mr. Obama had taken as a candidate.

The administration’s receptivity to the idea is owed partly to the 
advocacy of Mr. Baucus, whose committee has jurisdiction over tax policy 
and health programs, and to support from Republicans. There is less 
enthusiasm among Democrats in the House, though the health debate is at 
an early stage and no comprehensive plans are on the table.

Also, Mr. Obama’s own idea for raising revenues for health care — 
limiting the income tax deductions that the most affluent taxpayers 
claim — has run into opposition not only from Mr. Baucus but also from 
his counterpart in the House, Representative Charles B. Rangel, Democrat 
of New York, who is chairman of the Ways and Means Committee.

Mr. Obama’s proposed limit on deductions would raise an estimated $318 
billion over 10 years, or half of his proposed “health care reserve 
fund.” That is a fraction of the revenues that could be raised from 
taxing employer-provided health benefits.

In the campaign, Mr. McCain estimated that taxing all health benefits 
would raise $3.6 trillion over a decade — “a multitrillion-dollar tax 
hike,” one Obama advertisement said.

The Congressional Budget Office says that including health benefits in 
taxable income could mean $246 billion in additional revenue for a 
single year. Stopping short of full taxation, as Mr. Baucus and others 
suggest, would mean less new revenue.

The latest government figures, for 2007, show that 70 percent of the 253 
million people with health insurance received at least some of their 
coverage through employers. Employment-based insurance covers 
three-fifths of the population under 65.

Those who want to tax benefits in whole or in part make two main 
arguments. They say the tax exclusion is a generous subsidy that 
insulates employees from the true costs of health care, leading them to 
demand more of it and driving up overall costs. Critics also say the 
policy is unfair because it favors higher-income people. “It’s too 
regressive,” Mr. Baucus said. “It just skews the system.”

But in a blueprint for health legislation that he issued last November, 
Mr. Baucus said taking the exclusion on health benefits out of the tax 
code would go “too far” and “cause widespread disruption in 
employer-based health benefits.” Mr. Obama has also said he wants to 
preserve employer-provided coverage. Mr. Baucus, in his paper, cited 
other options, like taxing benefits above some value, taxing only 
wealthy employees or both.

However the proposal is devised, advocates will not have an easy time 
selling it.

Republicans, like Mr. McCain and former President George W. Bush before 
him, tend to favor taxing the benefits to finance other incentives for 
people to buy their own insurance. But given Mr. Obama’s use of the 
issue in his campaign, Republicans are unlikely to support a change 
unless the president himself proposes it, a senior adviser to Senate 
Republicans said.

Many Democrats, especially House liberals, are opposed. “It’s a dumb 
idea,” said Representative Pete Stark of California, chairman of the 
Ways and Means Subcommittee on Health. “We have to maintain as much as 
we can of the employer payments.”

Administration officials often say they will not repeat the mistakes of 
former President Bill Clinton, whose plan for universal health insurance 
collapsed in 1994. But Frank B. McArdle, a health policy expert at 
Hewitt Associates, a benefits consulting firm, said, “If President Obama 
agrees to cut back the tax break for employee health benefits, he will 
risk repeating one of Mr. Clinton’s errors by disrupting health 
insurance for people who have it and like it.”

Some big businesses consider nontaxable employment benefits a tool for 
recruiting and retaining workers. The United States Chamber of Commerce 
opposes eliminating the exclusion on health benefits, but James P. 
Gelfand, senior manager of health policy, said the group had not taken a 
position on limiting it.

Organized labor, a pillar of the Democratic Party base, considers the 
benefits among the union movement’s historic achievements for the middle 
class. But a split could be developing between the manufacturing unions, 
which have negotiated rich benefit packages, and the growing service 
employees unions, which include many low-wage workers without generous 

Alan V. Reuther, legislative director of the United Automobile Workers, 
said: “These proposals would represent a tax increase on working 
families. They would undermine good health care coverage.”

But at the Service Employees International Union, which was an early 
supporter of Mr. Obama, Dennis Rivera, the coordinator of the union’s 
health care campaign, said that while his organization was “predisposed 
not to agree to the taxing of health benefits,” he would wait to pass 
judgment. The union, Mr. Rivera said, wants to see how any tax changes 
fit into the overall effort to revamp the health care system. “We need 
to see the total picture,” he said.

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