When the Democrats passed Obamacare (without a single Republican vote), part of how they were allegedly going to pay for it was through a "Cadillac tax" on expensive employer-based insurance. Yet, this week, many Republicans are working with Democrats to delay or even repeal this tax. For three reasons, Republicans' constituents shouldn't be at all happy about these efforts.
First, this is an attempt to "fix" Obamacare, something Republicans shouldn't be in the business of trying to do. Second, it would actually make Obamacare even more expensive and hence even worse—while at the same time letting Democrats off the hook for their policy choices and causing corporate lobbyists to lose a significant portion of their interest in full repeal. Third, delaying the Cadillac tax would make it harder to pass a conservative alternative to Obamacare—and hence harder to repeal President Obama's signature legislation.
Expanding on this last point, all of the leading conservative Obamacare alternatives would close the tax loophole that currently makes expensive employer-based health insurance tax-free with no limit. If you get paid $50,000, you of course have to pay income tax on your earnings. If you then go buy health insurance on your own, you likely have to do so without a tax break. But if a corporate executive gets paid $50,000 in the form of health insurance (in addition to his other compensation), he gets it entirely tax-free.
Tom Price's Obamacare alternative, — by Jeb Hensarling, Trey Gowdy, Marsha Blackburn, Republican Study Committee chairman Bill Flores, and 75 other House members—would close this tax loophole. H.R. 2300, which is based on ""—the proposal I have advanced (first at and now at )—would cap this tax break for employer-based insurance at $20,000 for a family plan and $8,000 for an individual plan. The money saved would cover all outlays resulting from offering a long-overdue tax credit for those who buy health insurance on their own. And offering such a non-income-based tax credit in the individual market is the most important policy element in achieving full repeal.
How does this relate to the Cadillac tax? As and others have noted, as long as the Cadillac tax is in place, corporate lobbyists will like the sound of closing this tax loophole in the manner described above—and closing that loophole is central to efforts to repeal and replace Obamacare. The Cadillac tax would hit expensive employer-based plans with a new tax of 40 percent on all costs above $27,500 for families or $10,200 for individuals. (With its usual subtlety, Obamacare would apply this 40 percent penalty whether the policy-holder is the CEO or a janitor). Rather than close a tax loophole, in other words, Obamacare would apply a new tax—and corporate interests would much prefer the former to the latter.
Moreover, as long as full repeal means that corporations would be free of the Cadillac tax, corporate interests will (a least tepidly) support full repeal. If the Cadillac tax is gone, or even if it is delayed to 2020 or beyond, the corporate lobby's interest in repeal will wane considerably. Needless to say, Republicans should care about keeping deep-pocketed allies in the fold when it comes to repealing the centerpiece of Obama's presidency.
However, this week, Republicans are negotiating with Democrats to delay or even repeal the Cadillac tax through the "tax extender" package. Some of these Republicans no doubt care more about placating corporate interests than fighting the Obamacare fight. Many others likely don't understand that by delaying the Cadillac tax, they'd be helping to undermine the cause of full repeal.
Regardless, the right move is to leave the Cadillac tax in place, untouched, and un-delayed—as its continued existence will help all of Obamacare to be toppled at once. The outcome of this week's negotiations on the Hill will therefore have an impact on the nation-defining fight to repeal Obamacare and replace it with a conservative alternative. One hopes Republicans will avoid an unforced error—and that Republican presidential candidates will take a stand tomorrow night against this latest ill-advised effort at partial repeal.