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If Republicans Delay The Cadillac Tax, They Will Cost Taxpayers Far More In The Long Run

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Obamacare is a two-thousand-page jumble of costly and ill-designed mandates. But the health law contained one provision that, while imperfect, was the law’s best feature: its “Cadillac tax,” a feature that begins to end America’s discrimination against those who buy health insurance on their own. The Cadillac tax is the one thing in Obamacare that could actually lower the cost of U.S. health care, and thereby the burden on taxpayers caused by our growing national debt. So why is it that Republicans are naively going along with efforts by big business and labor unions to gut the Cadillac tax?

The original sin of American health care

For 70 years, we’ve been struggling with the heavy costs of the original sin of American health care: the decision to exempt employer-based health insurance from any all taxation, while fully taxing those who buy coverage on their own. This obscurity in the tax code has been the biggest driver of the unaffordability of U.S. health care.

Think about it this way. We buy car insurance and life insurance and homeowner’s insurance on our own. Why don’t most of us buy health insurance on our own? It’s because, as an outgrowth of wage controls in World War II, employers were allowed to offer health coverage to their workers in a way that made the value of that coverage excluded from taxation. So employers gradually started taking money out of worker’s paychecks, and plowing it into health insurance instead.

That was a great setup if you were a big healthcare business. Workers’ money was being removed from their wallets and going to you, through a web of third-party payors. Hospitals and doctors and drug companies could charge more and more for their products, knowing that workers were disconnected from the true cost and value of the health care they were receiving.

The employer tax exclusion now has a value of $500 billion a year in lost revenue, making it the nation’s second-largest entitlement. It’s the single biggest driver of America’s high health care costs. It’s the single biggest reason why tens of millions of Americans are uninsured. And it’s the single biggest reason why American health care revolves around insurance companies and the government, instead of patients.

Every GOP reform proposal contains something like the Cadillac tax

Obamacare’s “Cadillac tax” is a clunky but constructive first step in reforming the employer tax exclusion. It has problems—its structure as an excise tax is punitive, and it contains carveouts for favored Democratic constituencies—but the basic idea of equalizing the tax treatment of employer- and individually-purchased health insurance is a good one.

Literally every Republican proposal to replace Obamacare contains something similar to the Cadillac tax. Former Louisiana Gov. Bobby Jindal proposed gradually equalizing the tax treatment of employer-sponsored health insurance. A recent proposal from ten conservative health wonks, sponsored by the Peterson Foundation and the American Enterprise Institute, endorses an “upper limit to inject additional cost discipline into the most expensive [employer-sponsored] plans.” My own plan, Transcending Obamacare, recommends either replacing the Cadillac tax with a standard exemption, or reforming the tax to eliminate its carve-outs and increase its reach over time.

In other words, by delaying the Cadillac tax, Republicans are making it harder to replace Obamacare with more market-oriented reforms.

Delaying the Cadillac tax hurts taxpayers by increasing health costs

It’s been a common pattern over the last several years. While Republicans have voted to repeal Obamacare in full, the majority of GOP health legislation has involved catering to special interests, such as the misnamed “doc fix” that increases the debt by half a trillion dollars to increase payments to physicians.

The two-year Cadillac tax delay under consideration by Congress is the worst kind of special-interest legislation. It will enrich labor unions and big business at the expense of taxpayers. Why do you think Hillary Clinton supports it?

Some Republicans support delaying the Cadillac tax because they think of the delay as a tax cut. But over the long run, delaying the Cadillac tax increases the nation’s tax burden. To delay the Cadillac tax would be to trade the long-term interests of taxpayers for short-term political gain. In other words, the kind of thing Republicans are really good at.

Remember that the entirety of the growth in federal spending, as a share of our economy, is health care. (That’s before you count interest payments on the federal debt.) Who pays the bill for our $18 trillion debt? Taxpayers.

We can’t solve our debt and deficit problems without first getting the cost of health care under control. And we can’t get the cost of health care under control without a provision that is at least similar to the Cadillac tax.

If Republicans want to replace the Cadillac tax with something better, like a standard deduction for all purchasing of health insurance, great. But delaying it at the behest of special interests is a terrible idea, the kind of blunder that the Paul Ryan-led Congress was supposed to avoid.

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(DISCLOSURE: I am advising Sen. Marco Rubio, but the opinions in this post are mine, and do not necessarily correspond to those of Sen. Rubio.)