Why Does Chris Dodd Oppose Taxing Health Benefits?

I can't quite tell, but this is what Senator Dodd had to say this morning on Fox News Sunday:

"The idea that you're going to have people out there that are struggling to make ends meet today, they're falling further and further behind ... to turn around and say you basically have no change in your health care plan, and by the way we're going to tax you now for those benefits ... I think is a very bad idea."

I think this is a pretty silly analysis of the situation. Max Baucus isn't proposing a cap on the tax exclusion for kicks; he's proposing it in order to raise revenue for an overhaul of the health care system. Does Dodd think that will be a net gain for those "struggling to make ends meet"? I suspect he does.

More generally, the problem here is that Dodd is trying to describe a highly regressive subsidy -- the tax exclusion -- as if it were a progressive boon to struggling families. It isn't. About three-quarters of the $250 billion in foregone tax revenues goes to families in the top half of the income scale. Capping a tax exclusion like that is by definition going to be progressive.

[For more, Jonathan Cohn recommended this piece by MIT's Jonathan Gruber (this subject is apparently dominated by a conspiracy of Jonathans), and it does a good job of laying out the case for the cap.]

A younger, wild-haired Chris Dodd via Wikimedia Commons