Congressional Bipartisanship: Higher Deficits, Higher Health Care Costs, Lower Wages

Blog Post
Tuesday, July 16, 2019

The House of Representatives is expected to vote tomorrow on repealing the so-called “Cadillac Tax” on high-cost health insurance plans. The tax attempts to limit the tax-free treatment of employer-provided health insurance benefits by basically taxing those benefits above a certain dollar amount (in 2022 the amount would be $11,200 for individual coverage and $30,100 for a family insurance plan).

During the passage of the Affordable Care Act, the Congressional Budget Office suggested the tax was the legislation’s single most important cost-control effort. The CBO suggests, and most economists agree, that limiting tax benefits on the most generous health insurance plans leads to a reduction in health care spending. The tax itself raises revenue through it’s direct effects of taxing insurance plans. However, it is also projected to reduce the amount employers spend on health insurance, leading them to redirect that money to higher wages. These higher wages then bring in revenue through income taxes.

While it was initially scheduled to go into effect in 2018, it has been delayed twice and is currently scheduled to go into effect in 2022. The legislation being considered in the House would repeal the tax entirely at a cost of $193 billion over the next decade and substantially more beyond that.

Unfortunately, the bill appears to have 359 co-sponsors, well more than enough votes required to pass. It also includes no plan to pay for its cost. Hopefully the Senate will either not consider the legislation or do so with a way to pay for the cost -- ideally one that addresses the revenue loss and the need to reduce health care spending.

Update 7/17:

Unfortunately, it looks like the Cadillac tax repeal vote in the House might actually pave the way for a worse vote in the Senate. Finance Committee Chairman Grassley suggested in an interview that because the repeal in the House isn't paid for, that will make it easier for the Senate to pass other tax breaks without paying for them. 

From Roll Call: “They’re talking about passing without PAYGO the elimination of the Cadillac tax, so that kind of sets a pattern that maybe we don’t need to pay for other extenders,” the Iowa Republican said Tuesday.

In May, The Concord Coalition joined a diverse group of 11 other organizations to oppose the "tax extenders", which are short-term tax breaks that favor certain taxpayers, industries and activities. Rather than making them a permanent part of the tax code, Congress has renewed many extenders year after year so that they appear less expensive.