A Taxing Problem

This is the time where the Administration leaks an unpopular proposal to gauge public reaction, gets their head chopped off, and retrenches. At least that's how I hope this goes:

WASHINGTON — The Obama administration is signaling to Congress that the president could support taxing some employee health benefits, as several influential lawmakers and many economists favor, to help pay for overhauling the health care system.

The proposal is politically problematic for President Obama, however, since it is similar to one he denounced in the presidential campaign as “the largest middle-class tax increase in history.” Most Americans with insurance get it from their employers, and taxing workers for the benefit is opposed by union leaders and some businesses.

It's more than politically problematic, it undermines the entire point of health care reform, which is to reduce costs for the consumer. Any reductions would be offset on the back end by increased tax rates. Not to mention it smacks of hypocrisy because it's what McCain proposed during the campaign, and it gives conservatives a "tax and spend liberal" talking point. It's a terrible idea on just about every score. That said, Christina Romer refused to rule it out on Meet the Press yesterday.

However, I'm going to take a bright-side approach. Lots of bad ideas like this have been floated and subsequently retracted. Not to mention the fact that there's this very interesting letter from the Blue Dog caucus saying that they wouldn't demand that health care reform use PAYGO budgeting rules. In other words, they're willing to float an up-front deficit.

In its letter to budget legislators, Blue Dogs stress that they want to be convinced of the long-term savings of health reform: “While we agree that reforming our healthcare system will eventually lead to savings, it would be irresponsible to take on additional large-scale deficit spending in the short-term without the ability to definitively quantify future savings.”

To the dismay of Republicans and Democrats alike, the Congressional Budget Office has been conservative in assessing the savings of preventative health benefits. Proponents of health reform, most notably Senate Finance Committee Chairman Max Baucus (D-Mont.), have urged CBO to modify how it puts pricetags on healthcare bills.

Blue Dog spokeswoman Kristen Hawn said that Rep. Charlie Melancon (D-La.), the Blue Dog co-chair for communication, misspoke when he told The Hill on Thursday that the letter was being written to ask Obama to consider an alternative health care proposal that would be “revenue neutral.”

According to the healthcare plan Obama proposed in his budget, hundreds of billions of doallars would have to be spent up front but savings would be realized eventually, yielding a deficit neutral plan over the long term.

That's a big deal, and it could be that the Administration floated a big tax increase that the Blue Dogs would choke on so they could extract this pledge to spend up front and save down the road. The problem is that Max Baucus is the one pushing the taxation of health benefit in the Senate Finance Committee. In addition, nobody's actually talking about taxing all health benefits, but capping them to encourage lower-cost health care plans from employers. This could start a fight with unions.

Congressional liberals and, in particular, older labor unions, are dead-set against this idea. Two types of workers, after all, can negotiate high-end employer-based health care benefits: Wealthy workers and union employees.

At last month's White House Health Care Summit, Wyden suggested taxing benefits during one of the breakout sessions. "This idea of taxing benefits," shot back Teamster president Jimmy Hoffa, "that was the McCain idea. That was shot down during the election. … That’s insane. That discourages what’s working.”

At the least, it discourages what's working for the Teamsters.

This is of course why health care reform is so tricky under a Rube Goldberg grafting onto the current system. The stakeholders are going to want to keep what they have. And they're all willing to fight for it.