I’m a fan of the president’s health-care plan, but not always of the way it’s being sold. The other day I remarked that there were two opposite errors that people could make in describing the plan. The first is to call it a tax increase. The second is to deny that it raises taxes on anyone. That’s what the administration is doing. Yesterday’s New York Times quoted Katherine Baicker of the Council of Economic Advisers making this case, and I heard Tony Snow make it myself at the National Review Summit.
What they’re saying is that, yes, expensive health plans would be taxed more. But people would respond to the new policy by scaling back their health plans. Thus they’d avoid the tax.
I’m pretty sure this is wrong. The theory behind the proposal is that the government has encouraged people to get health benefits from their employer instead of getting higher wages and buying coverage themselves. It has encouraged them to do this by taxing the part of their compensation that comes in the form of wages, but not the part of their compensation that comes in the form of health care. So far, so good.
Snow and Baicker are right to say that if the proposal becomes law, compensation packages will adjust, with expensive plans being scaled back and the savings passed on in higher wages. But those higher wages will be taxed. No matter how the compensation package is rearranged, the percentage of compensation that is taxed will go up for these people.
I think it’s a good policy, but if I’m correct this is a bad talking point.