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Republican Health Plan Would Delay, Not Repeal, ‘Cadillac Tax’

03/10/2017

For more than seven years, Republicans have complained about the so-called Cadillac tax on the most expensive job-based health-insurance plans. But their health-care legislation—which abolishes the rest of the 2010 health law’s major tax increases—doesn’t repeal the tax.

Instead, they propose to postpone the tax’s start date from 2020 to 2025, a concession to Senate rules that create an incentive to keep tax increases lurking in the middle distance.

“We regard it as a blatant budget gimmick,” said Bob Greenstein, president of the Center on Budget and Policy Priorities, a left-leaning group that backs the tax as a measure for controlling health-care costs and raising revenue to pay for expanded coverage.

The plan’s lead Republican author and other lawmakers say the party has no intention of allowing the Cadillac tax to take effect in 2025. That leaves the tax in limbo, simultaneously too onerous to impose on constituents and too alluring as a budgetary tactic to eliminate.

“The Cadillac tax sort of triggers one of the problem areas in the Senate rules,” Representative Kevin Brady (R., Texas), the House Ways and Means Committee chairman, told radio host Hugh Hewitt this week. “So at the end of the day, let me assure you, the Cadillac tax is not going to take place.”

Republicans, who have 52 votes in the Senate, are advancing their health plans using budget procedures known as reconciliation. That lets the Senate pass the bill with a simple majority, not the 60-vote supermajority now common for other legislation.

But those procedures come with restrictions. Reconciliation bills can’t increase long-run budget deficits and congressional scorekeepers will look beyond the 10-year budget window when they analyze whether the House plan meets that test.

Repealing the Cadillac tax would remove a significant revenue source and health care cost constraint from that second decade and beyond. In 2024, for example, the delay would cut taxes by $13.6 billion, according to the congressional Joint Committee on Taxation.

By keeping the tax in place starting in 2025, it will be assumed to generate revenue in perpetuity, even if Republicans say they have no intention of leaving it in place. Those second-decade projections will be part of the Congressional Budget Office’s forthcoming analysis of the bill.

The Cadillac tax is a 40% levy on high-cost employer-sponsored health insurance plans. Nicknamed for the iconic luxury car, it would tax employers who offer expensive plans. It was created in 2010 but never implemented. In 2020, the tax would be applied to individual coverage costing more than $10,800 and family coverage above $29,100, plus other adjustments that would push those numbers higher, according to a 2016 estimate from the Congressional Research Service. Those figures will be adjusted for inflation by the time the tax takes effect, if it ever does.

Many economists like the tax because it addresses a distortion in existing law. Workers can get tax-free pay if they get health care instead of wages, giving employers an incentive to buy too much coverage and skimp on pay increases. Those potentially higher wages would generate income and payroll taxes, which are part of the revenue estimate.

But the status quo is powerful, and some high-cost plans belong to workers with dangerous jobs or older populations. Labor unions that have negotiated for generous health benefits and companies that offered them oppose the tax. They have warned that employers will cut back those benefits to avoid the tax. They helped get lawmakers to soften the tax as it was being written and then lobbied for a 2015 vote that delayed the start date from 2018 to 2020.

“It’s concerning to us that they want to leave this in there when they have the opportunity to repeal it permanently,” said Heather Meade, a spokeswoman for the Alliance to Fight the 40, an anti-Cadillac-tax coalition that includes unions, corporations and trade groups.

House Republicans toyed with an approach that would have a similar economic effect as the Cadillac tax—capping the exclusion of employer-provided insurance from income subject to tax. That would increase income and payroll taxes for individuals who receive the most generous employer-provided coverage. They eventually scrapped that idea and settled on delaying the Cadillac tax.

During this week’s 17-hour committee debate, Representative Erik Paulsen (R., Minnesota) suggested that such a cap might return.

“I hope that we can work together in the future to make sure that we replace this tax with a more transparent limitation on an overly generous job-based coverage,” he said.

While the political fight continues, the delay is “not going to change people’s behavior much,” said Mark Mazur, who was the top Treasury Department tax official under President Barack Obama and is now director of the Tax Policy Center in Washington. “I don’t think companies did a ton of planning with the Cadillac tax being pushed out to 2020.”

WSJ 3/10

   


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