Tuesday, December 29, 2009

The key battle in the conference committee

In my mind the biggest fight in the healthcare reform conference committee will be financing. The House pays for its reform by taxing millionaires, the Senate pays for their reform by taxing the "expensive" health insurance policies as income. In today's NY Times Bob Herbert demolishes the Senate's plan, 

The tax would kick in on plans exceeding $23,000 annually for family coverage and $8,500 for individuals, starting in 2013. In the first year it would affect relatively few people in the middle class. But because of the steadily rising costs of health care in the U.S., more and more plans would reach the taxation threshold each year.

Within three years of its implementation, according to the Congressional Budget Office, the tax would apply to nearly 20 percent of all workers with employer-provided health coverage in the country, affecting some 31 million people. Within six years, according to Congress’s Joint Committee on Taxation, the tax would reach a fifth of all households earning between $50,000 and $75,000 annually. Those families can hardly be considered very wealthy.

As Herbert says, this is a ticking time bomb for the middle class. Many observers believe that individuals and businesses will respond by rolling back the quality of their plans so as to avoid the tax. If, like my father, you've worked your whole life in a good middle-class union job and negotiated good benefits you're should enjoy those benefits while you can - they're going away soon.

But, you may be asking, if the plans are scaled back to avoid the tax how will this scheme finance healthcare reform? Herbert explains,

According to the Joint Committee on Taxation, less than 18 percent of the revenue will come from the tax itself. The rest of the $150 billion, more than 82 percent of it, will come from the income taxes paid by workers who have been given pay raises by employers who will have voluntarily handed over the money they saved by offering their employees less valuable health insurance plans.

That sound you are hearing is every board of directors, CEO, CFO, working and middle class American and labor leader in the country simultaneously laughing. There is no way that workers will see even a fraction of that money in their pay-checks, much less the 82% that the Joint Committee claims.

In reality the Senate financing scheme is going to shrink the quality of healthcare plans enjoyed by many Americans, its going to levy a huge tax on those who keep their plans and it's going to divert mney currently enjoyed as compensation via health benefits back into the pockets of executives.

This is why many of us were so upset with Jared Polis' ridiculous posturing on healthcare financing. Polis would have working Americans foot the bill while protecting Paris Hilton (and coincidentally himself).

Besides being bad policy the politics of the Senate funding scheme are bad for Democrats as well. Taxing the middle-class to redistribute to the working class plays right into the hands of the Republican and their politics of resentment. Soaking the rich to give to the middle-class and working class can be sold to the public. Taxing middle-class blue collar workers to fund what is perceived as a program for low-income Americans will blow up in the face of Americans. Shifting the burden of financing of our social safety net from the wealthiest Americans to the middle class has been a decades long project of the American right and it has succeeded in undermining those safety net programs. See the welfare reform of the 1990s as a prime example of what happens when this resentment is stoked.

I still think reform is worth doing, even if we're stuck with the Senate financing scheme. That said it is imperative that House Democrats hold the line on their tax and try to gain some concessions from the Senate on this front.

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