Adam Striar, Staff Writer
As we descend into the depths of another Presidential campaign, it should be surprising to exactly no one that Republicans have begun to vocalize their opposition to the “Cadillac” tax, which offends both their hatred of all things Obamacare and their general anti-tax dogma. What is more surprising is the resistance the tax has faced on the other side of the aisle. Given the amount of Democratic blood, sweat, and tears that went into passing this law, one would think that Democrats would defend one of its most important provisions tooth and nail. But both Hillary Clinton and Bernie Sanders have pledged to repeal the tax if elected, and in the process, revealed one of the uglier truths about politics: it’s overwhelmingly difficult to build support for policies that have long-term, uncertain, and diffuse benefits if the costs are highly concentrated.
The Cadillac tax has wide support from economists and health policy wonks who view it as one of the most promising opportunities to slow the growth of healthcare costs. It is also an opportunity to curtail the highly regressive employer-sponsored insurance tax exclusion, which allows employers to spend unlimited sums on employee health benefits with zero tax liability. This exclusion is currently the largest tax expenditure in the tax code, costing American taxpayers $248 billion in 2013, with 34 percent of the benefits accruing to the top quintile of earners. By imposing an excise tax on employer-sponsored premiums over designated thresholds, the tax aims to improve vertical and horizontal equity while discouraging overinsurance, which leads to the consumption of many unnecessary and counter-productive health services. The hope is that the tax will reduce overall demand for health services and consequently force providers to respond by lowering prices.
Despite strong support for the tax in economic circles and in academia, it is undeniable that it has costs that disproportionately impact certain classes of workers, many of which have close ties to the Democratic Party. For example, many public-sector unions have negotiated generous benefit packages in exchange for relatively low wages. While private firms with greater flexibility are likely to respond to the tax by shifting compensation away from benefits and toward higher wages, this process is likely to be much slower and more difficult for public employees.
But beyond this narrow issue, the mutiny within Democratic Party over the Cadillac tax actually reflects a problem that exists in politics across many other issue areas. When a particular problem requires policy solutions that have highly concentrated costs but diffuse and uncertain benefits, humans are extremely ill equipped to respond. Perhaps the most obvious example of this is climate change. We would all benefit from mitigating the future costs of global warming by taking steps now to reduce the carbon-intensity of our economy. However, any policy to reduce greenhouse gas emissions imposes large and visible costs on powerful entities, which have huge incentives to resist such policies. While we should not overlook the tireless work of environmentalists, most Americans are not willing to commit significant time and resources to influencing climate policy in the hopes of achieving benefits that are largely abstract at this point. The result is our painfully slow progress in addressing climate change, despite a deluge of warning signs.
With the passage of the Affordable Care Act in 2009, Democrats finally achieved something resembling universal health insurance, which liberal policymakers have been fighting for since at least the Truman administration. The Cadillac tax is perhaps the best opportunity to ensure the long-term fiscal sustainability of the Affordable Care Act and vital public insurance programs while eliminating one of the most regressive elements of the tax code, and Democrats have previously acknowledged as much. This makes it all the more disappointing to see Democrats piling onto the anti-tax bandwagon. While it is unsurprising—and even understandable—that Democrats are responding to the concerns of some their most influential constituents, they are seeking to avoid an inescapable reality of large scale policies: there will always be some who lose out in the short term, even if everyone is better off in the long run. The Cadillac tax is a unique opportunity for our lawmakers to demonstrate their ability to achieve politically difficult policy goals, and it would be a shame to see them back down yet again.
Adam Striar is in his second year at NYU Wagner where he is specializing in healthcare public finance and policy. He is interested in health reform, state level Medicaid innovation and health finance and is currently a Graduate Researcher at NYU Wagner. He has previously worked with the New York State Department of Health on the DSRIP program and with Budget Office of the U.S. Department of Health and Human Services in Washington, D.C. He graduated from the University of Colorado at Boulder with a degree in political science in 2011.