Saving Money The Excise Tax Way

The New York Times has a more detailed explanation of how the excise tax is supposed to generate revenue:

They also cited projections by the Joint Committee on Taxation that about $142 billion of the 10-year total of $201 billion to be raised by the proposal would come from increased income and payroll taxes -- evidence, they said, that workers would receive increased wages if employers spent less on health benefits.

This makes the complaints about the PWC report make more sense.  On the other hand, companies in New York City, school boards in Connecticut, and so forth are not spending so much on health insurance because they think it's fun.  They already have a considerable incentive to spend less, which is that this is money that they can't spend on other things.  What happens if they keep the health insurance and pass the excise tax onto their employees?  Tax revenues will fall relative to current law, no?

If companies can't get their costs down, either because negotiations with unions are sticky, or because they're just stuck in a high cost area, what you'll see is similar to the AMT and Medicare's sustainable growth rate:  ritual annual repeal. 

Moreover, not getting benefits is, like paying higher premiums, a cost.  It's not immediately obvious that it's welfare enhancing for those workers to have the government step in and decide that they should get higher (taxable) wages rather than more health insurance.  This is, after all, why we're having such trouble repealing the employer benefit exemption.  To be clear, I think it should be repealed.  But the result of doing so would be that most people would end up paying higher taxes, and you have to be honest about that.

Update:  Ezra Klein criticizes me for the error--12 minutes after I retracted it.  Internet time moves like lightning!  He also calls it a defense of the PWC report, which is an odd reading of that post--I specifically said that their estimates were uncomfortably high, that their cost-shifting assumptions were questionable at best, and that it wasn't much use at evaluating policy.  Should I also have called for them to be flogged?

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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