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Oct 21, 2009

WASHINGTON, D.C. – Despite attempts by the Senate Finance Committee to mitigate the harmful effects of the so-called "Cadillac" tax, or excise tax, on health care plans, the final bill recently approved by the committee would still slam one-third of health care plans, according to new congressional data analyzed by the Communications Workers of America (CWA). Moreover, there would be a $7,600 average tax increase between 2013 and 2019 on taxpayers affected by the tax. Middle income taxpayers making $50,000 to $75,000 affected by the tax would see their taxes increase 1.4 percent while millionaires affected would see their tax increase just 0.1 percent, showing the regressive nature of the tax. 

These findings are based on new data prepared by the Joint Committee on Taxation (JCT), which analyzed the legislation that passed the Senate Finance Committee October 13. The JCT data analyzed by CWA was provided to Rep. Joe Courtney (D-Conn.). The CWA analysis with an updated report, JCT letter to Courtney and other materials are available here. 

"The Senate Finance Committee excise tax is not a tax on 'Cadillac' plans; it's a pick-up truck tax. It taxes plans that are of great utility to millions of working Americans, but it is bad policy based on wrong assumptions," said CWA President Larry Cohen. "Health care reform should be paid for by making employers who don't pay, pay. The House bill does it with an 8 percent payroll tax on employers who don't provide coverage."

According to CWA's analysis of the new JCT data for the final bill, the excise tax effects include:

  • 34 percent of single plans and 31 percent of family plans will be affected by the tax in 2019, up from 19 percent and 14 percent, respectively, in 2013 when it takes effect. [Figure 1]
  • 31 million taxpayers will be affected by the tax in 2019, up from 12.7 million taxpayers in 2013. [Figure 2] One-quarter of middle-class taxpayers making $50,000 to $100,000 will be affected by 2019. [Figure 5]
  • $1,318 will be the average tax increase paid in 2019 by all taxpayers affected, up from $918 in 2013. [Figure 3] Extrapolating from the JCT data, CWA estimates that the total average tax paid by affected taxpayers will be $7,640 between 2013 and 2019 – or $1,000 a year.
  • The tax is very regressive. For example, among taxpayers affected by the tax in 2019 a family making at least $1 million a year will pay more than twice as much as a family making $50,000 to $75,000 ($2,750 vs. $1,200), but the wealthy family's income will be at least 14 to 20 times greater. [Figure 4]
  • An analysis of the JCT data by Citizens for Tax Justice found that households affected by the excise tax making at least $1 million would see a 0.1 percent increase in their taxes, whereas those affected households making $50,000 to $75,000 would see their taxes increase 1.4 percent. [Figure 6]

The excise tax would raise $201 billion by imposing a 40 percent excise tax on insurance company health plans and self-insured plans offered by companies to their workers. The excise tax would be assessed on the value of health care plans exceeding $21,000 for a family and $8,000 for an individual starting in 2013.  The "threshold" levels are higher for pre-Medicare retiree plans and high-risk industry plans such as in construction and mining – $26,000 and $9,850, respectively.

Changes made to the excise tax in the final legislation that are designed to lessen its harmful affect on the middle class included setting the higher thresholds at which the tax would take effect for pre-Medicare retirees and those in high-risk occupations and raising the annual increases in the threshold from CPI-U to CPI-U plus one percentage point. However, in the final bill the excise tax was increased from 35 percent to 40 percent.

Middle class families will be affected significantly by employers demanding deep health benefits cuts to avoid paying the tax or shifting the cost of coverage to working families or, as projected by JCT, by employers cutting benefits to get below the threshold but subsequently increasing workers' wages so that workers will pay increased income and payroll taxes.

This is precisely the kind of tax on health care benefits – taxing workers' health benefits as income – proposed by Sen. John McCain during the 2008 presidential campaign for which he was lambasted by candidate Barack Obama.

Rather than impose a new tax on the middle class, CWA supports other revenue sources:

  • Require most employers to provide coverage or pay an 8 percent penalty if they do not, as proposed under H.R. 3200 in the House of Representatives. This would raise $163 billion over ten years, according to the Congressional Budget Office (CBO). The Senate Finance Committee bill has no employer mandate.
  • Levy a modest surtax on the wealthiest Americans – 1.2 percent of U.S. taxpayers – as proposed in H.R. 3200, raising $544 billion over ten years according to JCT.
  • Limit the charitable deductions for individuals earning more than $250,000 and families earning more than $500,000, as proposed by President Obama, which would raise $318 billion over ten years.
  • Enact a strong public health insurance plan option to compete with private insurers, as proposed under H.R. 3200, which would lower costs by about $110 billion. The Senate Finance Committee bill has no public option.