The Corner

Harry Reid’s Parting Gift for the Unions in the Cadillac Tax Deal

Obamacare continues to unfold as a policy with terrible consequences for many Americans — as a result, Democrats have tried to delay the implementation of more bad news, like the so-called Cadillac Tax, i.e., the Obamacare tax on high-cost health-insurance plans.  

The tax is a bad policy that was supposed to act as a substitute for a cap on an exclusion from income tax of employer-provided health insurance policies. Getting rid of the exclusion — or at least capping it — has been high on many free-market advocates’ lists of “good policies that Congress refuses to implement.” And yet it should be a no-brainer. For one thing, it is the worst of the many tax preferences Congress is trying to push through this month. While I am all in favor of people keeping more of their income, this exemption is distortive, unfair, and a major contributing factor to the ever-growing cost of health care.

For now we have the Cadillac Tax. It will fall on employers and is therefore not a good substitute for a cap. But it can still be used to try to move the ball down the field. And besides, it’s a political nightmare for Democrats. They voted for it and then almost all of them voted to delay its implementation until 2020. I understand why they would be uncomfortable with their original vote: While Cadillac tax won’t do much in the way of helping consumers make wiser choices based on the price of health care, it will result in employers cutting back on the coverage they provide their employees.

Democrats are also uncomfortable with their vote to adopt the Cadillac tax because, as it turns out, unions will be massively affected by it. And we know how much Democrats want to avoid getting on the bad side of unions. In fact, Senate minority leader Harry Reid is going out of his way to get rid of the Cadillac tax for the sake of his union friends. The Hill reports:

Senate Democratic Leader Harry Reid (Nev.), under pressure from labor allies, is pressing hard for a two-year moratorium of ObamaCare’s “Cadillac tax” in a major tax deal that negotiators hope to wrap up by Monday.

Reid has assured labor leaders that freezing the Cadillac tax on high-benefit insurance plans is a top personal priority, and he wants to get it done now, knowing he has only a year left as Senate Democratic leader. …

“Leader Reid feels very strongly, in my opinion from discussions with him, that this needs to be done and it needs to be done now. And I think he is confident that will occur,” said Harold Schaitberger, general president of the International Association of Firefighters, who met with Reid this past week.

Suspending the Cadillac tax in a package that would extend an array of expired tax provisions would be a major win for labor unions, who have at times voiced their displeasure with Democrats this year. …

Unions are counting on Reid and Pelosi because President Obama opposes freezing the Cadillac tax, fearing it would undermine his signature healthcare reform law….

If Democrats succeed in scaling back the Cadillac tax, it could go a long way toward mending fences with unions ahead of a 2016 presidential election where their money and manpower could prove critical.

So if Reid succeeds, this will go a long way towards giving unions what they want and restoring peace between Democrats and their union friends.

Unfortunately, as has often been the case the last few years, when there is a Democratic will, there is a Republican eagerness to deliver. So for instance, The Hill notes that Republicans like Senator Dean Heller of Nevada is supportive of Reid’s plan. He is not alone according to Congressional Quarterly:

Some Republicans also want to use any tax package to suspend taxes imposed under President Barack Obama’s signature health-care law, as CQ’s Melissa Attias reports. They’re pushing for a one- or two-year suspension of the annual tax on insurers, as well as a two-year freeze of a tax on medical devices and a two-year delay of the so-called Cadillac tax on high-cost employer health plans slated to take effect in 2018. All three taxes were designed to help fund the expansion of health insurance to millions of Americans.

If I understand the plan, we keep the Obamacare subsidies but not the taxes — making it yet more expansive than it already was. How is that going to help get rid of this terrible law?

Incidentally, the Congressional Budget Office estimates that Obamacare will force a reduction of 2 million jobs over the next 10 years. The Hill has this tidbit about the CBO report:

ObamaCare will force a reduction in American work hours — the equivalent of 2 million jobs over the next decade, Congress’s nonpartisan scorekeeper said Monday.

The total workforce will shrink by just under 1 percent as a result of changes in worker participation because of the new coverage expansions, mandates and changes in tax rates, according to a 22-page report released by the Congressional Budget Office (CBO).

“Some people would choose to work fewer hours; others would leave the labor force entirely or remain unemployed for longer than they otherwise would,” the agency said in its latest analysis of the now five-year-old law.

But as Dan Mitchell notes, simply pointing to the job killing aspects of Obamacare may be a little unfair. After all, some jobs were created thanks to Obamacare: 

Yet, as we see from this story in the Kansas City Star, there may be some jobs being created because of the so-called Affordable Care Act. Here are some relevant excerpts.

“H&R Block expects more customers to feel the impact of the Affordable Care Act when they do their taxes early next year, providing a source of growth for the Kansas City-based business. A year ago, Block invested in marketing and training its tax preparers… “We think we’re going to start to reap the benefits of that investment,” Block chief executive Bill Cobb said Tuesday during a strategy session with analysts. …the company said an early effort will be aimed at getting back customers the company lost last year.”

To be sure, H&R Block isn’t explicitly saying that it will have additional employees, but I think we can infer that some new positions will be created as the company takes advantage of the fact that many taxpayers will be overwhelmed by the complexities and penalties that are part of Obamacare.

With this in mind, I’m going to be very careful in the future to state that the President’s law is a net job killer or a relative job killer.

The whole thing is here.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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