The latest version of the White House-crafted compromise, accepted by the AFL-CIO, would tax health plans costing more than $24,000 a year. By imposing a "Cadillac tax" on so-called luxury health plans, accompanied by higher Medicare taxes on households with annual income of more than $250,000, would supposedly go far toward paying for the nation's new health care system.
But is this system fair to the nation’s small business owners? Clearly not.
It is a fact that most families within the top 10 decile of the distribution of income in this country contain some business income. Often, a husband business owner has a wife who is a wage and salary worker. And vice-versa. If the wage earner happens to work for a large corporation, he or she may carry the family health insurance. The larger the company, generally the better the health plan. And that means the higher the untaxed income.
But suppose the business owner carries the family health plan. He or she pays more frequently because of the size of the insurance pool. So a policy of $23,000 issued to a small business person for the family might be worth considerably less than the same policy issued to a corporate executive. If you are going to tax health plans, at least tax equal plans to both large and small business owners that provide equal benefits for the same cost.
The proposed present system does not do that.
It is theoretically possible to design a tax that is fair. But union members — who, like many federal bureaucrats, pay only a fraction of the cost of their health plan — are in favor of the present scheme. Why shouldn't they? They benefit. Small business owners who pay the full freight are disadvantaged.
It would be a mistake to understate the amount of anger over all of this backdoor dealmaking in the White House. How else would the Democrats be on the verge of losing their 60-seat majority in the Senate in Tuesday's election in Massachusetts to fill the late Edward Kennedy's seat? Keep your eye on the Scott Brown vs. Martha Coakley outcome. If it can happen there — in a strong liberal state, it can happen anywhere.
Adding Medicaid taxes to incomes over $250,000 would be acceptable if the tax brackets were all the same for owners and wage and salary workers. But we pay taxes by family unit, not as individuals, so our system is always, at best, an approximation to an imagined ideal.
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