Unions Negotiate Exemption From Cadillac Tax

Various sources are reporting that after vociferous labor reaction against taxing “Cadillac health plans”, the White House and labor groups have apparently reached a deal whereby members of labor unions who would be affected by the tax will have a temporary exemption.

Under the terms of the proposed deal, the threshold for families would be raised to $24,000, and would exempt certain benefits like vision and dental, according to a Democratic source.

Collectively bargained plans would be exempted until 2017, to provide workers with a real opportunity to renegotiate their benefits packages, which were designed under current law and excluded from taxation.

Raising the exemption level and exempting vision and dental would probably help avoid impacting any of the relatively small number of middle-class families impacted by the tax, which is probably a good thing. However, there’s simply no excuse for the exemption for plans covered by collective bargaining agreements, even if its temporary. Especially since, as Megan McArdle notes, the temporary exemption will likely turn into a permanent one.

Now, before there’s too much anti-union grousing, it’s worth noting that CNN reports that the AFL-CIO was also pushing for a straight income-based exemption.

One of the sources familiar with negotiations said that in addition to protecting health plans negotiated under collective bargain agreements, labor leaders are pushing to expand the deal to exempt health plans for all Americans making under $200,000 a year.

If that’s true, kudos to the union for pushing for that.

The bottom line, though, is that if the Administration wanted to mollify labor, then they should have implemented the income exemption and dumped the union exemption. Doing it the other way around, as they appear to have done, is interest-group politics at its absolute worst.

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Alex Knapp
About Alex Knapp
Alex Knapp is Associate Editor at Forbes for science and games. He was a longtime blogger elsewhere before joining the OTB team in June 2005 and contributed some 700 posts through January 2013. Follow him on Twitter @TheAlexKnapp.

Comments

  1. legion says:

    So, if a working-class American wants a really robust, actually-useful health plan, their best bet is to join a union?

    Yeah, it’s interest-group politics, and your idea would be better in general, but _damn_ that’s some slick maneuvering.

  2. Pete says:

    Can you imagine a world with no Federal income taxes, only a Federal consumption tax, and the special interests building highways instead of personal fortunes? It would be called “The Fair Tax.”

  3. Pete says:

    Alex, here’s another take on your description of interest-group politics: http://www.doczero.org/

  4. just me says:

    Well my opinion is the AFL-CIO was asking for the across the board exemption so there would be room for negotiation.

    If they could actually get the union plans exempted, then that would drive some companies to go union too.

    I don’t really see the unions as being that altruistic here, they can see a possible cash cow if they can negotiate an exemption for union contracted plans.

  5. Dave Schuler says:

    Equal protection is wonderful, isn’t it?

    Raising the exemption level and exempting vision and dental would probably help avoid impacting any of the relatively small number of middle-class families impacted by the tax, which is probably a good thing.

    Unless the threshold is indexed (my understanding is that it isn’t), by 2017 the plans of many, many more “middle-class families” will in all likelihood be subject to the tax.

  6. Alex Knapp says:

    Dave –

    The exemption is indexed, at least, it was the last time I looked.

  7. Crust says:

    Alex Knapp:

    The exemption is indexed, at least, it was the last time I looked.

    It is indexed, but it’s indexed to (slightly more than) the CPI. Since medical inflation is much higher than inflation generally, McCain’s (and now Obama’s) “Cadillac” tax is expected to hit many middle class families over time though it would effect very few initially.

  8. Steve Plunk says:

    Since union members are the largest part of the “Cadillac” plan recipients the $200,000 limitation is immaterial. Throw out union members and there are very few people making under $200,000 with those “Cadillac” plans. This is interest-group politics trying to disguise itself. Democratic interest-group politics to be specific.

    Do the Amish join unions? That’s the way to go.

  9. Ben says:

    So … how is this not a violation of equal protection? How is this different from “Everyone who has a last name ending in a vowel pays more taxes”?