Labor Leads on Health Reform: Tax Wealthy, Not Middle Class

Leaders of a dozen of America’s largest labor unions met yesterday with President Obama and administration health care officials to deliver the message that the Senate’s proposed excise tax on working families’ health benefits is bad policy and bad politics.

As Congress and the White House work to craft a final health care reform bill, a key question remains how major components will be funded. The Senate’s bill currently includes a 40% excise tax on the costs of health benefit plans in excess of $8,500 for individuals and above $23,000 for family plans. The House health care reform measure would place a 5.4% surcharge on the 1% highest incomes — $1 million for joint filers and $500,000 for individuals.

The AFL-CIO, other major labor organizations, and their progressive allies including Health Care for America Now strongly favor the approach supported in the House health reform bill — to tax the wealthy, not the middle class.

As the union leaders prepared to meet with the President at the White House, The New York Times reported:

Union leaders said Monday afternoon that they planned to tell President Obama in a meeting later in the day that it would be a costly political mistake to enact an excise tax on high-priced, employer-sponsored health benefits.

They said they would warn the president that enacting the tax, which the president favors and is part of the Senate health bill, would give Republicans lots of political ammunition — enabling them to run ads saying that Mr. Obama and the Democrats had imposed a tax on the middle class after Mr. Obama had promised during his presidential campaign not to raise taxes on average Americans.

During his campaign, Mr. Obama said he would not raise taxes on households earning less than $250,000 a year.

Union leaders also said it would be politically unwise for Mr. Obama to back the excise tax because his presidential campaign had run ads attacking John McCain for proposing to tax health benefits.

In a speech at the National Press Club earlier Monday, Richard Trumka, president of the A.F.L.-C.I.O., said the labor federation could not support the Senate version of the health legislation, largely because it contains the excise tax, which would affect individual insurance policies with annual premiums more than $8,500 and family policies more than $23,000.

According to one union survey, the tax would affect one in four union members.

As former Labor Secretary Robert Reich wrote yesterday on his blog:

There’s only one big remaining issue on health care reform: how to pay for it. The House wants a 5.4 percent surtax on couples earning at least $1 million in annual income. The Senate wants a 40 percent excise tax on employer-provided “Cadillac plans.” The Senate will win on this unless the public discovers that a large portion of the so-called Cadillacs are really middle-class Chevys, expensive not because they deliver more benefits but because they have higher costs.

… by taxing so-called Cadillac plans, the Senate bill would actually end up taxing the Chevy plans of a large portion of the middle class. And as time goes by, a still larger portion, since the Senate plan is geared to the overall rate of inflation rather than to the (much higher) rate of increases in health-care costs.

Some say the Senate’s excise tax is the only way to control long-term health care costs. Baloney. If a portion of the middle class loses their health care, they won’t get the preventive care that’s so crucial to containing long-term costs.

Reports following the White House meeting between union leaders and the President indicate that labor’s message may be making headway.

President Signals Flexibility on Health Plan Tax (New York Times)

President Obama told union leaders at a private White House meeting on Monday that he remained committed to taxing high-cost insurance policies as a way to drive down health costs. But he also signaled that he was willing to amend the proposal to “make this work for working families,” a senior administration official said.

Mr. Obama’s remarks, at an hourlong session with a dozen labor leaders in the White House Roosevelt Room, came just hours after the new president of the A.F.L.-C.I.O., Richard L. Trumka, delivered a speech at the National Press Club in which he criticized the tax as a “policy that benefits elites” and warned that Democrats would pay a price at the polls if it was enacted.

“Instead of taxing the rich, the Senate bill taxes the middle class by taxing workers’ health plans — not just union members’ health care,” Mr. Trumka said. “Most of the 31 million insured employees who would be hit by the excise tax are not union members.”

Meanwhile the Wall Street Journal is reporting in “Democrats Weigh New Tax on Investment Income”:

House and Senate negotiators are considering applying for the first time the Medicare payroll tax to investment income as part of a compromise to pay for a health overhaul.

The extra Medicare tax would apply only to the wealthy and could allow congressional Democrats to reduce the sting of a tax on high-cost insurance plans, said Democratic aides and others briefed on the negotiations.

Currently, the Medicare tax applies only to wages, without any limits. The 2.9% tax is divided in half, with workers and employers each paying 1.45%. The health bill passed by the Senate would raise the worker contribution to 2.35% for individuals making more than $200,000 a year and couples making more than $250,000 a year.

Under the proposal now being considered, people making more than those amounts would also pay the Medicare tax on dividends and other income from investments, the people familiar with the talks said. Income from pensions and retirement accounts, including 401(k) accounts, would be exempt.

The proposal would also bring the Senate closer to the House version of the health bill, which contains a 5.4% income surtax on the wealthy.

“It’s an obvious compromise,” said Chuck Marr, director of federal tax policy at the left-leaning Center on Budget and Policy Priorities. “They need to find something between the House and Senate versions. The advantage of this proposal is that, like the House surtax, it is broad-based.”

WSJ’s MarketWatch reports in “Pressure builds for tune-up on ‘Cadillac’ tax”:

If organized labor and many Democrats in the House get their way, that proposed tax on high-end health-care plans will be heading for the body shop before lawmakers come up with a final health-care overhaul bill for President Barack Obama to sign.

But if Obama was swayed by labor leaders’ salvos against the tax during a meeting at the White House on Monday, he’s not saying — White House Office of Health Reform spokeswoman Linda Douglass described the meeting only as “productive” and gave no indication if Obama had changed his mind about the tax.

While it appears that the White House may be looking at remodeled excise tax-Medicare payroll tax hybrid, still Bob Reich asks:

But why even take these chances when the House bill simply and cleanly goes after the top 1 percent? It’s not as if couples earning over a million can’t afford to pay the tax. When I last looked, the top 1 percent was taking home a record 23 percent of total income. If anything, the Great Recession is widening the gap. It’s bonus time on Wall Street again. But the middle class is taking a beating.

This is the last big fight on health care reform. It’s being fought right now. Make your voice heard.

On Wednesday, January 13, join the National Call-In — pick up the phone, call toll free 1-877-3-AFL-CIO (1-877-323-5246) and Tell Congress: Don’t Tax Working Families’ Health Care Benefits, support the House bill, and vote for health reform that:

  • Does not tax our health care benefits;
  • Requires employers to pay their fair share; and
  • Reduces cost—the best way to do this is with a public health care option.

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