Tuesday, December 29, 2009

Glenn Greenwald doesn't want to tax the rich

I'm going to give Glenn the benefit of the doubt, and engage with him on the substance of his recent post about why the Senate health care bill should be rejected by progressives. He spends most of the post pretending that the only progressives who support the (Senate) health care bill work for the New Republic, and that their only defense of the bill is that its opponents are unserious lefty hippies. This is insulting and obviously untrue - to take just one example, Ezra Klein (who I'm sure Greenwald dislikes, but who doesn't he dislike?) has written tens of thousands of highly substantive words making the progressive case for the health care bill.

Anyway, the main point Greenwald's post makes is that today's Cadillac plans will be tomorrow's Chevy plans. As health care costs rise, this tax will hit more and more middle-class people, who'll be subjected to a seriously increased tax burden, and what looked at first like a tax on the rich will become a tax on the middle class, a la the AMT.

MIT economist Jon Gruber responds (a day ahead of Glenn's post) by arguing that what looks like a tax isn't actually a tax, it's an incentive to restructure the health insurance market in a way that keeps costs low - most employers will, he asserts, switch to plans that cost less than the threshold that triggers the tax, and pass the savings on to their employees. This seems a bit naive to me, but he claims something similar happened in the late 90s, when health insurance premiums stopped rising and wages started to go up, in real terms, for the first time in a while. When premiums started to rise again, real wages fell.

The other point he makes is that this new tax simply offsets a tremendous loophole in existing tax law. Right now, an employee's wages get taxed, but her insurance premium paid by her employer doesn't. In other words, if she makes $50,000, she pays taxes on that. But if her employer also pays $25,000 a year for her insurance, that never gets taxed. If another company pays the exact same wages, but only buys a $15,000 a year health plan, then the existing law is giving the first company a massive tax break, only because the first company didn't do a very good job of shopping around for efficient insurance plans. That doesn't sound like the right system of incentives to me, nor does it sound like a very progressive situation.

Gruber sums up the argument better than I ever could:
So in the end, we have a policy that provides the necessary financing to pay for subsidies to low-income families; induces employers to buy more cost-effective health insurance, lowering U.S. health-care spending; offsets a bias in our tax system that favors more expensive insurance; and raises wages by $223 billion over 10 years. To put a twist on an old saying: The Senate assessment on high-cost insurance plans doesn't walk like a tax or talk like a tax -- because it is not a tax. It is an innovative way of financing the health reform we so desperately need.

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