The Cadillac Tax is a heap of junk

I rarely agree with labor unions, and I look pretty skeptically at the arguments of health insurance companies too. They’re both pretty shameless about pursuing their own self-interests regardless of how it affects anyone else. But sometimes they’re right, and they’re right in the current push to see the ObamaCare Cadillac Tax repealed.

Granted, most of the unions and health insurers supported ObamaCare overall, so it’s hard to have sympathy for them in their suffering. But let’s leave that aside for a second and just look at the issue on the merits. The Cadillac Tax imposes a 40 percent tax on health insurance benefits that the government considers too generous – the theory being that if they’re spending too much for your benefits, they must be paying you too little in wages. ObamaCare defenders are trotting out an economist named Larry Levitt who thinks that if employers are forced to cut back on benefits, they’ll raise wages as a result. You can see why unions and health insurers don’t like the Cadillac Tax. The unions always demand the most generous benefits possible in collective bargaining. Their ability to get it is one of the reasons they can convince people to pay them dues. And the health insurers obviously want to sell the highest-priced policies possible. But the real reason to agree with their position and advocate the repeal of the Cadillac Tax is that Larry Levitt’s theory is completely messed up. It’s true that both wages and benefits are part of the overall cost of employment, and companies calculate carefully the costs they can absorb for each employee. But the notion that companies, if compelled to cut back on health benefits, would just automatically plow that money into higher wages is absurd. First, it’s the federal tax code that incentivizes employers to spend more on benefits and less on wages, because benefits are tax deductible. If you want to change that equation, simplify the tax code so it no longer manipulates employers in that way. Second, it’s hard to take seriously the argument that you want higher wages when you’re willing to slap a 40 percent tax on companies who provide too much in benefits to their employees. Where do you think the capital to pay the tax is going to come from? How does that help them find the money to raise wages? Third, margins are tight enough as it is for employers – thanks in large part to a tax-and-regulatory state that imposes the highest corporate tax in the world and has added a record number of new rules since Obama took office – not to mention constantly tipping the scales in favor of organized labor whenever Obama’s NLRB has the chance to do so. Companies aren’t just going to knee-jerk raise wages if they feel an imperative to do anything possible to control their labor costs, which most do. But even beyond all this, it’s between an employer and their employees how to construct compensation packages. They can work that out for themselves, and they don’t need the government’s help in deciding the mix between wages and benefits. The Cadillac Tax is a perfect example of a government that not only presumes to tell employers how generous they must be to their employees, but also presumes to tell them the exact form the generosity must take. Repeal the Cadillac Tax. Oh, and the rest of ObamaCare too.

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