House May Tax Payrolls, Drop Wealth Levy to Finance Health Plan

[ProSense]

House May Tax Payrolls, Drop Wealth Levy to Finance Health Plan

January 07, 2010, 08:28 PM EST

By James Rowley and Ryan Donmoyer

Jan. 7 (Bloomberg) -- U.S. House lawmakers may agree to pay for the nation’s health-care overhaul by adopting versions of Senate proposals to raise Medicare payroll taxes and tax health benefits for the first time, Democratic aides said.

House leaders may also discard a plan to impose a surtax on the wealthiest Americans, which has come under fire from some Senate Democrats, aides said.

Financing the expansion of insurance coverage to more than 90 percent of Americans looms as the largest issue facing Congress. House Speaker Nancy Pelosi, seeking to merge her legislation with a Senate bill, briefed the Democratic caucus today on party leaders’ discussions during a conference call.

The talks are at a preliminary stage until the Senate returns on Jan. 20, and House Ways and Means Committee Chairman Charles Rangel predicted “tough” negotiations. Some House members are vowing to put up a fight over the legislation, which will cost about $1 trillion over 10 years.

“There’s a gap between us and the Senate and, I guess, the White House on how to pay for health-care reform,” said Representative Joe Courtney of Connecticut, who leads a group of 190 House Democrats opposed to the Senate proposal to levy an excise tax on the most-expensive insurance plans.

President Barack Obama yesterday urged House leaders to drop their opposition to that tax, a Democratic aide said last night. The tax has drawn protests from labor unions, who are among the Democratic Party’s biggest backers.

more

[Hello_Kitty]

1. Which would raise $87 billion compared to the $460 billion the surtax would raise. eom

[ProSense]

2. Senate bill raises $491 billion

The largest element of the financing of the House plan is a surtax on high income taxpayers (raising $460 billion over 10 years), a proposal not included in the Senate bill. The Senate plan, in turn, includes two proposals not in the House bill – an increase in the Medicare payroll tax for high income workers (producing $54 billion), and a new tax on high-premium employer-sponsored health plans (raising $149 billion). Both proposals contain new excise taxes on various health industries, though the scope of the taxes varies – the House taxes only medical device makers (for revenues of $20 billion), while the Senate bill also includes taxes on brand-name drug companies and health insurers (for total revenue of $102 billion).

PDF

[Hello_Kitty]

5. The Senate estimate of $149 billion on the excise tax is ludicrous.

They think 82% of it will come from raised wages from employers passing the savings from getting cheaper plans onto employees. Which, from the outset, is odd because proponents of the plan claim it won't affect middle class workers.

The JCT assumes that 82.5 percent of the revenue raised from the tax will be generated by increased wages to make up for health benefits cuts and increased cost sharing. However, most employers say they will not increase workers’ wages in response:

* Only 9 percent of human resource executives in a recent Towers-Perrin survey said if health care reform reduced their benefit costs would they increase salary or direct compensation; 78 percent said they would retain the savings in the business as profit.
* Just 16 percent of health plan sponsors in a recent Mercer survey said they would convert any health care cost savings into higher pay for their workers.

http://www.healthcarevoices.org/pages/impact-of-the-excise-tax-on-the-middle-class

[ProSense]

7. You would be surprised what competition will do.

Have you ever seen a company do an assessment and raise salaries accross the board? It happens when companies need to stay competitive.

[Hello_Kitty]

9. That is pure speculation. The Senate is making predictions based on nothing.

The EPI has debunked the wage increase from the excise tax: http://epi.3cdn.net/f121df10fab53d2b16_3nm6bhd7e.pdf

[ProSense]

11. Not speculation. And this is not very convincing

There is logic to their argument, but it is only skin-deep and deeper examination will show it to be simply not true. The logic can be seen looking at trends in health care premiums and wages—wage growth fared better in the late 1990s when health care premiums grew more slowly than in the early 1990s and wages performed poorly in the 2000s, a period when health premiums grew strongly again.3

However, digging just a bit beneath the surface reveals the following:

1. Health care costs are not large enough to substantially move wages as these proponents claim;
   
2. Examination of actual wage and benefit trends confirms that changes in the trajectory of health care costs did not materially affect wage trends over the last 20 years; and
   
3. The wage behavior described—accelerating in the late 1990s and more slowly thereafter—actually best characterizes wage growth for low-wage workers who have minimal access to employer-based health care. Conversely, this pattern of wage-growth over time is least pronounced for higher paid workers with the most health coverage.

Health care costs are not large to substantially move wages? I think most people would consider a $2,500 - $5,000 raise (the savings) significant.

As for the rest, how can one equate a pattern in an out of control system to the effects of reforming that system?

[Hello_Kitty]

12. The paper has the data to back up its assertion about wages.

It compares wages paid by employers who provide health insurance to those who don't. I don't know what more you need. And as I pointed out, the majority of employers are admitting in polls that they have no intention of raising wages if their health care costs go down. In a time of high unemployment why would they?

[ProSense]

14. "It compares wages paid by employers who provide health insurance to those who don't."

Are you trying to claim that a company that doesn't provide health benefits and doesn't offer better wages is more competitive than one that does?

[Hello_Kitty]

15. That's irrelevant to this discussion.

The paper shows that shifts in health insurance costs have little to no impact on wages.

[ProSense]

16. What? n/t

[Hello_Kitty]

17. Yeah. Read the paper instead of just skimming it.

You keep trying to bring red herrings into this but you cannot escape the conclusion of the EPI report: "Employer health costs do not drive wage trends."

[last1standing]

3. Medicare is only used by the wealthy anyway!

This will increase wages!

It will stop unnecessary procedures!

It will level the playing field so that we all have the same health care!

What bit of spin am I missing?

[ProSense]

4. The tax is on

incomes above $200,000 for an individual and $250,000 for a couple.

[haele]

6. That seems to be more fair, remove the cap (not the amount you pay)

than just "levy a tax on the wealthy". It actually does the same thing. Why should someone stop paying Medicare tax on any amount they make above $99K or $109K or whatever it is now when they are eligible for the same Medicare no matter how much they've made once they're 65?
However, they really do have to drop the tax on "Cadillac Health Care" - it's ofthen the only thing keeping bankruptcy away from people who work and making too much to put their disabled dependants on Medicare or Medicaid.
I couldn't afford to get a supplimental plan for my husband and kid. I depend on my employer's benefits so they can be halfway functional and reasonably healthy - and even then, a full 1/3 to a bit more of our household income goes to medical costs. Add a $50 a paycheck tax to it because "I make too much" and as well as increasing my premium and deductables or cut my bennies (because I'm pretty sure the insurance companies will do any or all of those thing out of spite that we "dare to regulate" their profit machine) and we'll be forced to figure out how to move to worse neighborhood or crappier rental to make the rent.
Maybe we should buy a trailer. That is, if we can find a mobile home park where lot rental is cheaper than renting a house would be. (Unless you're a senior or want to live two hour's commute out of town, lot rental starts around $800 a month, not counting utilities and HOA fees...true, that's half what we pay now for a house because of the dog, but add in the payments for the trailer and the yearly taxes, and it ends up being about the same)

Haele

[ieoeja]

35. There is no cap on medicare. Just on social security. (nt)

[IndianaGreen]

8. A middle class tax increase, no matter how you slice it

Are you familiar with the term "blowback?"

[Blasphemer]

27. This entire process is so ass backwards it's not even funny

If they are going to raise Medicare payroll taxes, they need to just open up Medicare. It is not rocket science.

[frazzled]

10. This is bull

First of all, if they do return to the idea of raising Medicare payroll taxes, it will be onlhy on couples who make more than $250,000 a year. That is not a "middle-class" tax hike, for those who are arguing that. It's a tax on the wealthiest Americans.

As for the excise tax, which has been discussed to death, and that 99% of people don't seem to understand at all, it is a tax on insurers, not on individuals. The money that the Senate bill expects to raise from it--money that will pay for 30,000,000 uninsured individuals to get subsidies to pay for health care--is not directly from the insurer's taxes, but rather from the INCREASED WAGES that people will get when their employers no longer decide to pay for inflated plans and instead use it to pay workers. I'm not making this up: it's what every health economist has written about it. Why the unions want to keep pouring more and more dollars down the piehole of private insurance companies is quite beyond me.

We don't know precisely what this excise tax will do. We know it won't risk any insurance pools for people who are in high-risk jobs or who are older--because that's already been excluded in the bill. It is almost universally agreed that it will (a) raise workers' wages and (b) start to bend the cost curve on health care over the long term. Any unintended consequences that might fall on the middle class will surely be addressed step by step, as it has been for the alternative minimum tax, etc.

People here sound like teabaggers sometimes: oh noes, taxes! no taxes! anything but taxes! They'd rather give all their money to insurance companies. I don't get it.

[Hello_Kitty]

13. Increased wages due to the excise tax has been debunked to death.

There are posts right in this thread that link to good sources explaining why the Senate's claim is bogus. Honestly, it's absurd on it's face. You can't claim on the one hand that the tax won't affect any workers while on the other claiming it will result in savings that will raise their wages.

[frazzled]

18. It has not been debunked to death

It's the opinion of most progressive economists, who have been pushing this for years.

Oh, maybe you meant that someone over on firedoglake, who doesn't know shit from shinola, debunked it. That doesn't exactly count for me. But knock yourself out.

It's like the other week, when there were 685 posts screaming that Obama had killed the Dawn Johnsen nomination by not "fighting" for her, that it was dead, over. Well, no: WH has confirmed she will be renominated.
Do you people believe everything you read on Huffington Post or firedoglake?

[Hello_Kitty]

19. Yes it has and your red herrings and ad hominems do not change it.

The Senate bill has no basis for assuming the excise tax will raise billions in revenue through higher wages. The economists who claim it will are wrong and the facts on wages bear that out. http://epi.3cdn.net/f121df10fab53d2b16_3nm6bhd7e.pdf

[frazzled]

20. Here are 23 economists who disagree (plus more)

In a letter sent to Harry Reid and to the president regarding health-care reform on November 17. I extract only the part about the excise tax:

Excise tax on high-cost insurance plans. The Senate Finance Committee’s bill includes an excise tax on high-cost health insurance plans. Like any tax, the excise tax will raise federal revenues, but it has additional advantages for the health care system that are essential. The excise tax will help curtail the growth of private health insurance premiums by creating incentives to limit the costs of plans to a tax-free amount. In addition, as employers and health plans redesign their benefits to reduce health care premiums, cash wages will increase. Analysis of the Senate Finance Committee’s proposal suggests that the excise tax on high-cost insurance plans would increase workers’ take-home pay by more than $300 billion over the next decade. This provision offers the most promising approach to reducing private-sector health care costs while also giving a much needed raise to the tens of millions of Americans who receive insurance through their employers.

http://www.talkingpointsmemo.com/documents/2009/11/economists-say-controversial-tax-on-high-end-insurance-crucial-to-reform.php?page=2
http://economix.blogs.nytimes.com/2009/11/17/economists-letter-to-obama-on-health-care-reform/

letter signed by Dr. Henry Aaron, The Brookings Institution
Dr. Kenneth Arrow, Stanford University, Nobel Laureate in Economics
Dr. Alan Auerbach, University of California, Berkeley
Dr. Katherine Baicker, Harvard University
Dr. Alan Blinder, Princeton University
Dr. David Cutler, Harvard University
Dr. Angus Deaton, Princeton University
Dr. J. Bradford DeLong, University of California, Berkeley
Dr. Peter Diamond, Massachusetts Institute of Technology
Dr. Victor Fuchs, Stanford University
Dr. Alan Garber, Stanford University
Dr. Jonathan Gruber, Massachusetts Institute of Technology
Dr. Mark McClellan, The Brookings Institution
Dr. Daniel McFadden, University of California, Berkeley, Nobel Laureate in Economics
Dr. David Meltzer, University of Chicago
Dr. Joseph Newhouse, Harvard University
Dr. Uwe Reinhardt, Princeton University
Dr. Robert Reischauer, The Urban Institute
Dr. Alice Rivlin, The Brookings Institution
Dr. Meredith Rosenthal, Harvard University
Dr. John Shoven, Stanford University
Dr. Jonathan Skinner, Dartmouth College
Dr. Laura D’Andrea Tyson, University of California, Berkeley


Then there is the liberal Center on Budget and Policy Priorities:

… most of the affected health insurance plans would not actually pay the excise tax. Employers would modify their health plans to stay within the thresholds for the excise tax, and they would convert the resulting savings into higher wages or other fringe benefits for their employees. JCT estimates that over 80 percent of the revenue raised by the proposal would stem from income and payroll taxes on these higher wages.

http://economix.blogs.nytimes.com/2009/10/22/cadillac-tax-myths/

And finally, a response to Mishel:

EPI's Larry Mishel has a new paper arguing that changes in health-care premiums do not drive changes in wages. He names me as someone arguing otherwise, and he's right to do so: Looking back over the paragraphs he quotes, they certainly sound like I'm saying wage changes are simply the product of changes in premium costs.

As Mishel says, that's obviously not true. Health-care costs aren't big enough to drive wages. For instance: This year, health-care costs will grow very slowly because we're in a recession. But that doesn't mean wages will rocket upwards. Quite the opposite, in fact.

That doesn't cancel out the fact that there is a much larger tradeoff between premium increases and wages than workers understand. Imagine a worker making $55,000, and whose employer pays for a $14,000 health-care plan for the worker and his family. If health-care costs grow by 10 percent that year, that's $1,400. Assume the worker pays a bit of his plan's costs out-of-pocket and the employer is actually spending $1,100 keeping up with premium increases. That's $1,100 that's going to that worker's compensation, but not to his wages. Over the years, that sort of thing adds up, and workers never even know that it's happening. That essential ignorance is a serious problem in the health-care system.

http://voices.washingtonpost.com/ezra-klein/

There are people who are going to argue both sides of this issue--but you simply cannot say that the idea that wages and benefits costs are not linked.

[FrenchieCat]

21. No use frazzled,

these folks here believe themselves to know everything....
and since they have invested time in the argument,
they really aren't gonna change their minds now.

As long as lurkers and reasonable folks have a chance to
read and understand and know how to separate hyperbole
from the real facts, that is what counts in a long run.

:hi:

[Hello_Kitty]

22. The JCT is assuming increased wages based on nothing.

Employers haven't indicated they will pass savings on to employees.

The JCT assumes that 82.5 percent of the revenue raised from the tax will be generated by increased wages to make up for health benefits cuts and increased cost sharing. However, most employers say they will not increase workers’ wages in response:

* Only 9 percent of human resource executives in a recent Towers-Perrin survey said if health care reform reduced their benefit costs would they increase salary or direct compensation; 78 percent said they would retain the savings in the business as profit.
* Just 16 percent of health plan sponsors in a recent Mercer survey said they would convert any health care cost savings into higher pay for their workers.

http://www.healthcarevoices.org/pages/impact-of-the-excise-tax-on-the-middle-class

Really, how can they base an estimate of over $100 billion dollars in raised revenue off of nebulous assumptions of increased wages when employers aren't even saying they will raise them?? What is this projection based on? Fairy dust?

[karynnj]

24. Economic theory, maybe?

It is logical that the employer thinks of the cost of labor as the full cost, not just wages. In addition, employees do think of the "compensation package", not just wages in deciding to take a job.

[Romulox]

26. The same economic theory that predicted "free trade" would lead to a boom of "new economy" jobs?

:hi:

[Hello_Kitty]

28. LOL!

"Economic theory"

:rofl:

[karynnj]

23. Nice post, frazzled

[Hello_Kitty]

29. *snort*

Still laughing about "economic theory". :rofl:

[karynnj]

38. laugh all you want, the fact is that that, correct or not, is the usual basis

for recommendations by economists.

[Hello_Kitty]

40. "correct or not"

:rofl: :spray:

[chimpymustgo]

31. It is still a PREDICTION based on nothing but HOPE. What is the actual likelihood that CORPORATIONS

in a time of high unemployment will RAISE WAGES? Real wages have been stagnant for several decades now. This is just bull

[dionysus]

33. and yours is still just a PREDICTION based on PESSIMISM. however,both are just opinions.

reality will probably be somewhere in the middle.

you tend to insinuate your opinion matters and those of people you disagree with don't.

[Hello_Kitty]

36. But the Senate is making predictions about how much money will be raised.

They are claiming the excise tax will raise $150 billion and that 82% of that will come from increased wages. They have no basis to make such an ambitious projection. They are using that unfounded projection to justify the excise tax.

[dionysus]

37. lots of things are based on predictions that might not happen according to the prediction. HOWEVER,

constantly assuming the absolute worst is just as bad as blindy believing the rosiest of predictions.

and at this point noone really knows what will happen.

[Hello_Kitty]

39. Then no one should be putting specific dollar values on unknowns as the Senate is doing.

Once again, they have no business citing a figure of $149 billion based on nebulous predictions of wage increases.

[dionysus]

41. the point is, all kinds of government\civil planning, in every scope, are based on predictions.

are you suggesting none of this be done because no one knows the future? seriously?

let's not plan for population growth, because, for all we know, a meteor will wipe half of us out!
shit, we might as well not have a national budget, our predictions of what things cost might not be accurate!

[Hello_Kitty]

42. Seriously, I think projections should have a basis in data and history.

This projection of wage growth driven revenue from the excise tax has neither. They're pulling it out of thin air. A government can plan revenue growth on the possibility of pink unicorns showing up and shitting diamonds if they want, but it's not a good idea.

[chimpymustgo]

43. I am not asserting an infusion of billions of dollars into the treasury based on corporations'

changing their well-established blood-sucking patterns! I'm just saying that's BULLSHIT.

I am not a believer in FAITH BASED POLITICS.

[Hello_Kitty]

34. And to claim it will raise over $100 billion in revenue from these supposed wages, no less. eom

[dionysus]

25. getting rid of the surtax is preposterous.

[Hello_Kitty]

30. The whole bill has become preposterous.

I don't know how they can still call it "reform" with a straight face.

[dionysus]

32. i hope it's something that can be built upon, but i can understand your opinion