Remember this devastating political ad from last year?
Many Americans probably do, as it represented a real turning point in the presidential campaign.
Aired in October, the ad picked up on an exchange from the vice-presidential debate between then-Senator Joe Biden and Alaska Gov. Sarah Palin. Palin had just explained that the McCain health-care plan would provide refundable tax credits of $5,000 per household to help families buy portable insurance. Biden, who had clearly been waiting for the issue to come up, responded with a scripted attack. What the McCain-Palin folks don’t tell you, Biden warned, is that they would — “for the first time in history” — tax your employer-provided health benefits.
The public, most of whom get their insurance from their workplaces, was taken aback and confused. Why would Republicans want to tax employer-sponsored health-care benefits? Aren’t Republicans for cutting taxes? Aren’t they for private, as opposed to public, health insurance? And how could a tax increase make anyone better off?
It was a devastating blow. The McCain campaign never adequately explained their plan or offered an effective counter-argument — and the Obama-Biden campaign never looked back. They rode the issue for weeks, airing millions of dollars in attack ads. Indeed, the effectiveness of the coordinated attack on the McCain health plan is surely one of the main reasons for Obama’s victory in November.
Well, guess what? Not five months later, having secured the presidency, President Obama has changed his tune. Taxing health-care benefits is not such a bad idea after all, he and his team now say.
How do we know this is their view? It’s the worst-kept secret in town. Obama’s budget included $318 billion in new revenue from limiting the deductibility of charitable contributions and mortgage interest. But this was never a serious proposal. It was always just a placeholder for the revenue that Senate Finance Committee chairman Max Baucus plans to raise by taxing a portion of employer-paid health premiums, as indicated in this piece from the Washington Post last Thursday.
The administration has already signaled that making this switch would be more than fine with them. In their budget submission, they said they would entertain any “serious” proposals offered by Congress to pay for the health-care plan, noting in particular that some have suggested “capping the exclusion of employer-sponsored health insurance.” This week, Office of Management and Budget director Peter Orszag went even further, stating emphatically that the idea of taxing employer-paid premiums should be “on the table” for consideration.
Why would Senator Baucus take on something that was so ferociously attacked by his own party just months earlier? There is probably only one reason: Sen. Charles Grassley.
Senator Baucus is desperate to secure a deal on health-care with Senator Grassley, who serves as the Finance Committee’s ranking Republican. Once struck, a Baucus-Grassley plan would almost guarantee passage in the Senate, making it much more likely that a bill would reach the president’s desk this year.
It is certainly the case that Republicans have long argued that changing the tax treatment of job-based plans is fundamental to an effective reform plan. Today’s open-ended preference encourages overly-expansive insurance and makes it difficult to jump-start a more robust individual market where people, not firms, would own the coverage.
But will Baucus really offer up a tax change with teeth? There are reasons to be skeptical. Indeed, it is possible to raise a lot of revenue with a flawed change in the tax treatment of health insurance. For instance, Baucus might seek to impose a tax on any benefits offered by firms that exceed a government-dictated minimum plan. Instead of forcing cost-conscious consumption, such a change would simply enforce a new, government-written benefit package.
Moreover, what else would be in the Baucus plan? To get a good change in the tax treatment of health insurance, would Republicans have to sign off on a government-run option? A national insurance exchange? A federal health board? An employer “pay or play” mandate? Price controls and rationing? It is a near certainty that whatever price Baucus would seek from Republicans to get a sensible tax law change would be much too high.
If Senator Baucus and President Obama want to tax health benefits “for the first time in history” to pay for the Obama health-care vision, Republicans should let them see how far they can get on their own.