Hidden Tax Hurts Just As Much
Posted 07:06 PM ET
Health Care: The president swore that the middle class wouldn't get a tax hike. Yet he's pushing Congress to place a levy on high-end medical insurance plans. It's another campaign promise about to be broken.
'Under my plan," candidate Barack Obama said on Sept. 12, 2008, while campaigning in Dover, N.H., "no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes."
He didn't tell anyone to read his lips then. But the president is about to make a blunder that rivals that of the first President Bush when he broke his "no new taxes" pledge in 1990.
The federal takeover of the nation's health care system that Democrats are brewing up in Washington will have to be financed by someone. The administration wants to put it on the backs of the middle class in the form of a 40% excise tax on the value of health insurance coverage that exceeds $8,500 a year for individuals or $23,000 for families.
This isn't just another soak-the-rich scheme. This is going to hit the middle class — the schoolteachers, the steelworkers, the everyday folks of whom Bruce Springsteen sings so passionately.
That's why House Democrats and labor unions oppose it.
Those who think they'll be exempt from the tax because their health care insurance isn't one that Obama would define as a "super, gold-plated Cadillac" plan are kidding themselves. Douglas Holtz-Eakin, director of the Congressional Budget Office under George W. Bush, says 95% of Americans who are covered by plans that fit into the Cadillac category make less than $250,000 a year.
Even groups on the left get it. As Jim Kessler, vice president for policy for the progressive Third Way think tank, puts it: "A lot of those folks that have Cadillac plans have Chevy wages."
Also don't believe the claim that the tax will be on the insurance companies only. Sure, insurers will write the checks to Washington. But they'll forward their costs to the customers, adding to a tax burden that's already too punitive — and going to get worse.
"Passing the tax on to workers would result in an effective tax rate that is even higher than the specified 40%," Curtis S. Dubay wrote in October in a Heritage Foundation WebMemo. "When the insurance companies embed the cost of the excise tax in premiums, the prices of plans will rise. A higher price means the excise tax would be higher, too."
This would happen when the tax on a $10,000 individual plan adds $600 (40% of the $1,500 beyond the $8,500 threshold) to the cost, leaving a new premium of $10,600. The new cost will then be subject to the tax, boosting the premium another $840 (40% of the $2,100 over the $8,500 threshold). By now, that $10,000 plan is costing $11,440 a year.
"This cascading effect," explains Dubay, "could raise the effective rate for the excise tax to 67% according to one estimate — considerably higher than the 40% specified in the bill."
The problems don't stop there. The growing premiums will drive many private employers that provide coverage for their workers to downgrade to cheaper insurance plans, which defeats the effort to improve health care.
We can see why House Democrats don't like the insurance tax, but their alternative is no better.
Hitting the wealthy with steeper income taxes — a 5.4% surcharge on income beyond $500,000 for individuals, $1 million for joint filers — to fund a scheme the public doesn't favor isn't wise. History clearly shows that such tax hikes weigh on economic growth.
Most Americans don't know what their insurance plans are worth. They're happy to let their employers pay the premiums for them and believe that the money isn't coming out of their pockets.
There's a quick way to roughly judge a plan's worth, however.
As the St. Petersburg Times Truth-O-Meter explains, "if you feel like your health plan is quite generous, you might" be driving a Cadillac plan.
"These are plans," says the St. Pete newspaper, "that generally have very low co-pays and lots of extras."
Sound familiar? Then either be prepared to pay more, or be stuck with a brass-plated, Yugo plan that's more affordable. And while learning to settle for less, don't forget: This grand reform effort coming out of Washington is supposed to improve our health care.
|
