Why The Cadillac Tax On Health Plans Isn't Really A Tax : Shots - Health News A prominent economist argues a tax on high-end health plans that is part of the Senate overhaul bill isn't a tax at all. Instead, it's just the elimination of a subsidy, whose demise would eventually increase workers' take-home pay.
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Why The Cadillac Tax On Health Plans Isn't Really A Tax

By now you've heard plenty about the so-called Cadillac tax on high-end health insurance, a plank in the Senate health bill that would levy a 40 percent penalty on health plans costing more than $8,500 for singles and $23,000 for families.

President Obama has endorsed the approach, saying in an NPR interview last week that "taxing Cadillac plans that don't make people healthier, but just take more money out of their pockets" is a "smart thing to do."

Now MIT economist Jonathan Gruber is telling us in a Washington Post op-ed the Cadillac tax is no tax at all, "it is the elimination of an existing tax break."

How's that? Well, his argument goes that the cash part of your compensation gets taxed but not the considerable portion that is in the form of health insurance. That's a big subsidy, he writes, and one that costs taxpayers to the tune of $250 billion a year. Follow Gruber's logic and calculations a little further and you find he projects the Senate tax would actually increase wages by $223 billion over a decade.

We thought the Wall Street Journal's economics editor David Wessel succinctly captured the skepticism about Gruber's argument in a Monday morning tweet: "Hmm."

However you see it--tax or elimination of a subsidy--opposition to the measure remains strong among those whose plans would be in the IRS's crosshairs. The Communications Workers of America pulled together a bunch of reasons the tax is a bad idea. Chief among them: the plans at risk aren't usually gold-plated but instead reflect the high costs of insuring groups of workers who may be older.