Regarding the recent editorial “Keep the Cadillac tax” (Oct. 12, p. 26), the so-called Cadillac tax, unfortunately, gets caught in the cross-currents of three economic concerns, not all compatible with each other. As the editorial notes, there is the need to maintain economic incentives that avoid what actuaries call “induced consumption,” or healthcare consumers being insulated against the true costs of care and thereby being less frugal in their consumption of healthcare services.
The other current is the need to maintain the funding of $91 billion derived from this tax to pay for health insurance subsidies for those newly insured under the Affordable Care Act. This is really a redistribution of income through taxation and deductibility, which is the third economic current.
The redistribution of income achieved by this tax mechanism, however, largely comes at the expense of middle-income taxpayers at a time when real incomes have declined in their purchasing power over the past 20 years or more. The troubling part of this equation is that many of the people whose health insurance benefits will be subject to the Cadillac tax made a long-term pact involving the trade-offs in wages and healthcare benefits. I am speaking about union workers and many public-sector employees.
I favor a policy that aims more toward income equality, but I think other methods would be more equitable than imposing the redistribution against the same middle-income people. Instead, fund the
$91 billion from those whom Warren Buffett identified as deserving to pay higher taxes.