The curious excise tax compromise

By David Montgomery
Published/Last Modified on Friday, Jan 15, 2010 - 11:41:00 am CST

Democratic negotiators in Washington have apparently come up with a compromise to bring labor unions on board with the excise tax on high-value health care plans that unions — who often have negotiated high value plans — have been fiercely opposed to.

There are apparently three big changes, two of which seem innocent enough:

• The threshold at which plans are subject to the excise tax goes up. This is a strict tradeoff — it makes the plan more expensive by lowering the revenue, but it also means fewer families are subject to the tax

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• Several exceptions, such as for dental and vision plans

But there's one change that certainly raised my eyebrows, and seems certain to rub all sorts of people the wrong way:

• Collectively bargained health care plans aren't subject to the tax for an extra five years

The tax doesn't kick in until 2013 anyway, so this means unions get a full decade tax-free. Say what you will about the merits of the excise tax — and many economists seem to think it makes good economic sense — exempting unions makes this seem like politics at its worst. Democratic allies get five years tax-free as a result of a back-room bargain? As Megan McArdle said, "If you think that the Nebraska deal was unpopular, just wait until the administration announces higher taxes on everyone but its friends in the labor movement."

From simple standards of fairness, this seems rotten. As far as politics go, it's abysmal. Surely there was a better way to nullify objections from labor unions to the health care bill.

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