I Still Support the Weakened "Cadillac Tax"

The tax on gold-plated insurance plans is watered down and delayed. But it would still change our default position on taxing insurance.

President Obama's latest health care plan waters down the "Cadillac tax" on expensive employer-provided insurance plans. Last week, I said this made me "a little depressed." This week Matt Yglesias says maybe I shouldn't be:

There's a widespread view in the media that something like the "cadillac tax" on high-value insurance plans is meaningless as a long-term cost control strategy since it won't be implemented until 2018. At the same time, it tends to be the very same people in the press who are very insistent that it's necessary to do something now about the long-term fiscal situation...

Crucially, though, there's nothing congress can do today about deficits 10 years from now other than make promises about what future congresses will do.

Well, I don't think we need to do "something now" about the long-term fiscal situation -- and I think even the hawkish folks at Peterson are mostly calling for Congress to quickly adopt a plan rather than immediately begin slashing entitlements and spending. But Matt makes an important point: Deficit reduction is a long-term game. If you're going to prohibitively worry about "future congresses" blowing up all your cost savings plans, then why even advocate adopting a long-term plan to begin with?

And yet. I'm still disappointed with the eight-year delay of the "cadillac tax" because this useful cost container has been diluted and twice pushed back. The more the tax is diluted, the less it contains costs and discourages profligate use of the employer insurance deduction. The more the tax is pushed back, the greater chance future electeds will "fix" it -- like we patch the Alternative Minimum Tax to keep it from hitting middle class payers, or like we adjust the Medicare Sustainable Growth Rate (although the Center on Budget and Policy Priorities makes an interesting case why the SGR fixes aren't a good indictment of Medicare cost cuts).

The good news about the excise tax is that it's better than a plan, or a promise. If the health care bill passes, taxing insurance plans would be a future law. It would would actually change the default position, as Brookings' Henry Aaron said, which means future Congresses would need a "sufficient majority in Congress to sign a bill and end it." That's why for me, the excise tax -- beaten, bloodied and bruised as it is -- remains a reason to support the bill.