You are using an outdated browser.
Please upgrade your browser
and improve your visit to our site.
Skip Navigation

The Still-Good Cadillac Tax

David Gregory asks Nancy Ann-Deparle a good question:

MR. GREGORY:  One of the big selling points on this is that this would reduce cost over time and that it would be paid for, that it would actually lower the deficit.  But David Brooks, given--before I get to that, but the issue of a tax on those gold plated plans is a key way that you pay for this and balance the costs down the line.  Well, that has been changed in the president's plan to take effect later.  This is what David Brooks writes in his column on Friday.  "The Democrats (and the Republicans)" at the summit, "conveniently neglected to mention the fact that they had just gutted the long-term revenue source for their entire package, the excise tax on high-cost insurance plans. That tax was diluted and postponed until 2018.  There is no way that members of a Congress eight years from now are going to accede to a $1 trillion tax increase to pay for a measure that the 2010 Congress wasn't brave enough to pay for itself."

MS. DePARLE:  And by the way, David, that, that tax, that fee on high-cost insurance plans was designed to bring down pressure in the long term, and it does just that.  And that's why the economists across the spectrum who have looked at it say that's something that they want in this bill and they're glad that it's remained in there.  The, the president's fought for it.

MR. GREGORY:  But it's pushed back.

MS. DePARLE:  It is, by the way, one of the Republican ideas.

MR. GREGORY:  Right.  But it's pushed back to 2018.

MS. DePARLE:  It is, but it was also improved to make sure that it really does focus...

MR. GREGORY:  But, but the question that David Brooks is asking, you really think Congress down the road is going to pay for a tax increase that this Congress wasn't brave enough to pass now?

MS. DePARLE:  Yes, I do, because this president has--is paying for reform, unlike similar measures in the past, first of all.  And, secondly, it, it's something that over 10 years is going to reduce the deficit.  They're not going to walk away for that.

DeParle doesn't really answer the question here. But there is a good answer. It's obviously true that the further out you push the enactment of this tax, the more vulnerable it becomes to changes by future elected officials. On the other hand, there is a decent moral argument for postponing it. Workers have forfeited wage increases in order to bargain for costlier health care plans from their employers. So delaying the tax gives the market time to reset, and future wage agreements to take the new tax on these plans into account. I wouldn't say that such logic compels a delay in the tax, but it does provide some basis.

Second, once the law is on the books, Congress must then take affirmative steps to repeal it. As long as any one of the President, 41 Senators, or 218 House members wants to keep the tax in place, it will remain in place. Being the default position is a major advantage for any policy in our system of government.

Now, the skeptics' favorite counterexample is the "Sustainable Growth Rate" in Medicare, which legislated draconian cuts in physician reimbursements that have been routinely overturned by Congress. As the Center on Budget and Policy Priorities has explained, and I've linked several times, the SGR was not intended to save much money. It wound up legislating huge payment cuts because it was poorly designed. It still saved more money than it was projected to, but Congress has stepped in to keep it from saving even larger sums. This example does not show that Congress will just refuse to let the Cadillac tax take effect. The Cadillac tax in intended to create significant savings.

In short, it's clearly true, and disappointing, that Congress has forced the Obama administration to weaken the Cadillac tax. But even the compromised final product remains quite valuable and worth fighting to implement.