Tax Analysts Blog

Democrats: Helping the Uninsured or Helping the Unions?

Posted on May 11, 2009

On May 8, the New York Times reported that the top tax-writer in the House of Representatives said that there was “no way” he would support taxing employer-provided health benefits. How can liberal Democrat Charles Rangel oppose cutting tax breaks for CEOs' gold-plated health benefits? Especially when the revenue gained would be used to help pay for expanding healthcare to the poor?

Rangel is just repeating his party's long-standing opposition to any hint of cutting the healthcare exclusion. The stated policy reason for the Democrats' opposition -- and there is some merit to it -- is that without the subsidy employers will start cutting back on healthcare -- potentially reducing health insurance coverage. But then Democrats exaggerate and claim the whole employer-provided health insurance system will begin to unravel. That's a little far-fetched given that nobody is talking about eliminating these benefits, just limiting them for the most expensive plans.

The exclusion for employer-provided health insurance is one of the main reasons for runaway healthcare costs in America. Employees like taking their compensation in the form of tax-free health benefits. And once they have a generous plan they have little incentive to monitor their healthcare expenses.

Politics, not policy, drives the Democrats' position on taxing healthcare. Because they negotiate expensive healthcare benefits for their members, unions strongly oppose any notion of limiting the tax subsidy for health insurance. During the 2008 election cycle, unions contributed $83.8 million to candidates for Congress. Democrats got 92 percent of that total. Democrats are now just returning the favor. Apparently, close ties to organized labor are more important than making the distribution of tax benefits for healthcare more fair.

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