Democratic Fault Lines Grow On “Cadillac Tax” Repeal/Delay

December 10th, 2015

The Cadillac Tax continues to form fissures within the Democratic Party. Hillary Clinton and Bernie Sanders favor repealing it, as do Harry Reid and Nancy Pelosi. The New York Times Editorial Board favors repealing it. Republicans favor repealing it, though I agree with Kevin Williamson at National Review that its repeal should only be part of a broader reform, and not a standalone measure which would make the law even more volatile.

However, one prominent Democrat–and really the only one who matters–disagrees. Press Secretary Josh Earnest said the President still opposes the repeal, and stopped just short of a veto threat:

While Earnest said he would not comment on ongoing negotiations, he delivered his strongest criticism yet of efforts to repeal — or at least pause — the Cadillac tax as part of the year-end tax extenders package.

“We certainly strongly oppose the notion of repealing the Cadillac tax,” Earnest told reporters Wednesday. “I think we’ve been clear about our decise to strengthen the Affordable Care Act, not repeal or repeal it, or whatever other action word some Republicans may choose.

“I’m not going down the list of what we’ll veto or what we won’t,” he said. “Once we see a final bill, then we can give you some guidance.”

Obama is correct for opposing this repeal, as it would destroy one of the few cost-containment measures within the ACA. Peter Orszag, who was President Obama’s OMB Director, explains how this effectively topples one of the legs of the proverbial three-legged stool.

Peter Orszag, a former top White House official who worked on the law, said the push for repeal is exposing those lingering tensions among backers of reform and its three pillars: coverage expansion, budget neutrality and cost control.

“The coalition in favor of those three pillars always had some tension in it,” Orszag said. “When elements of that coalition just pick out their favorite pillar and are willing to jettison the other two, the irony is they may end up harming the thing they think is most important.

“If you lost one of the three legs, the whole thing becomes much less sustainable,” he added.

Sen. Warner (D-VA) also explains that delaying the tax once would likely amount to a perpetual delay, and be even worse than a repeal due to the uncertainty it creates.

“A two-year delay, I’m concerned, turns into a permanent delay,” said Sen. Mark Warner (D-Va.). “It was one of the key areas of cost containment, and in a state like mine where we’re still trying to get Medicaid expansion, and state legislators say the federal government’s not going to keep the existing commitments, when you take away one of the substantial pay-fors for healthcare reform, you strengthen their case.”

Warner added that delays in the tax could continue indefinitely, as when lawmakers used “doc fix” legislation to avert Medicare cuts year after year.

“We could be creating the next doc fix,” Warner said.

Living in some sort of delusional la-la land is Sen. Chris Murphy (D-Conn.) who thinks the law is creating surpluses:

Still, 90 senators voted for an amendment to repeal the tax last week.

Sen. Chris Murphy (D-Conn.), one of those 90 and one of the strongest backers of ObamaCare as a whole, argued that the law could withstand the revenue and cost-control losses.

“The law clearly is costing less than imagined, so we have a surplus of revenue compared to how much the law costs,” he said.

Bob Kocher, a White House official, calls the Democrats push to repeal “shortsighted.”

“I wish and hope that we could help articulate that argument to labor,” said Bob Kocher, another former White House official who worked on the law.

“I find it disappointing that it’s Democrats [pushing for repeal], who I believe are being short-sighted,” he added.

It is. This provision will destroy labor unions, a key Democratic constituency. The $90 billion that is lost through the repeal of the tax doesn’t even touch the fact that employers will avoid dumping employees on the Obamacare exchanges, and thus further diminish the cost-containment components of the law.

Update: More sense from Avik Roy on the Cadillac Tax:

Obamacare’s “Cadillac tax” is a clunky but constructive first step in reforming the employer tax exclusion. It has problems—its structure as an excise tax is punitive, and it contains carveouts for favored Democratic constituencies—but the basic idea of equalizing the tax treatment of employer- and individually-purchased health insurance is a good one.

Literally every Republican proposal to replace Obamacare contains something similar to the Cadillac tax. Former Louisiana Gov. Bobby Jindal proposed gradually equalizing the tax treatment of employer-sponsored health insurance. A recent proposal from ten conservative health wonks, sponsored by the Peterson Foundation and the American Enterprise Institute, endorses an “upper limit to inject additional cost discipline into the most expensive [employer-sponsored] plans.” My own plan, Transcending Obamacare, recommends either replacing the Cadillac tax with a standard exemption, or reforming the tax to eliminate its carve-outs and increase its reach over time.

In other words, by delaying the Cadillac tax, Republicans are making it harder to replace Obamacare with more market-oriented reforms.

The two-year Cadillac tax delay under consideration by Congress is the worst kind of special-interest legislation. It will enrich labor unions and big business at the expense of taxpayers. Why do you think Hillary Clinton supports it?

Some Republicans support delaying the Cadillac tax because they think of the delay as a tax cut. But over the long run, delaying the Cadillac tax increases the nation’s tax burden. To delay the Cadillac tax would be to trade the long-term interests of taxpayers for short-term political gain. In other words, the kind of thing Republicans are really good at. …

If Republicans want to replace the Cadillac tax with something better, like a standard deduction for all purchasing of health insurance, great. But delaying it at the behest of special interests is a terrible idea, the kind of blunder that the Paul Ryan-led Congress was supposed to avoid.