Unions Rally to Oppose a Proposed Tax
on Health Insurance
Published: January 8, 2010, New York Times
When millions of blue-collar workers were leaning toward John
McCain during the 2008 campaign, labor unions moved many of them into Barack
Obama's column by repeatedly hammering one theme: Mr. McCain wanted to tax
their health benefits.
But now labor leaders are fuming that President
Obama has endorsed a tax on high-priced, employer-sponsored health insurance
policies as a way to help cover the cost of health
care reform. And as Senate and House leaders seek to negotiate a final
health care bill, unions are pushing mightily to have that tax dropped from the
legislation. Or at the very least, they want the price threshold raised so that
the tax would affect fewer workers.
Labor leaders say the tax would hit not only wealthy executives with
expensive health benefits, but also many rank-and-file union members who have
often settled for lower wage increases in exchange for more generous health
benefits.
The tax would affect individual insurance policies with annual premiums above
$8,500 and family policies above $23,000, which by one union survey would affect
one in four union members.
The House bill does not contain such an excise tax, and many House Democrats
oppose adding it to the combined House-Senate legislation. But the tax is a
critical revenue component in the Senate's bill. If the bill does too little to
cover its costs, it might be defeated. Many economists support the tax, saying
it will help hold down costs.
With labor groups warning that the tax will infuriate a key part of the
Democratic base — union members — President Obama has agreed to meet with
several top labor leaders on Monday to address their concerns and try to defuse
their anger. The group includes the presidents of the A.F.L.-C.I.O.,
Teamsters
and the steelworkers' and service employees' unions.
But whether the tax is negotiable remains unclear. Not only has Mr. Obama
specifically endorsed the idea, but the White House and Senate leaders see the
tax as pivotal in paying for the health care overhaul and addressing runaway
health care costs.
Many Democrats and union officials fear that if both sides dig in on the
issue, it could create a rift between the White House and labor — with some
union leaders hinting they might lobby aggressively against the entire health
care bill if it contains such a tax.
Union leaders have repeatedly warned the White House about the strong
rank-and-file dismay, which could hurt the Democrats in Congressional elections
this fall, especially in battleground states like Ohio, Pennsylvania and
Wisconsin.
Ron Gay, an AT&T
repairman in Youngstown, Ohio, who spent much of the summer of 2008 urging
co-workers to vote for Mr. Obama, said, "If this passes in its current form, a
lot of working people are going to feel let down and betrayed by our legislators
and president."
The Congressional
Budget Office estimates that 19 percent of workers — or about 30 million
employees — would be affected by the tax in 2016. Economists say most of them
would be nonunion, although it is organized labor that has the lobbying clout to
take a stand.
In recent days, labor's strategy has become clear. Unions are urging their
members to flood their representatives with e-mail messages and phone calls in
the hope that the House will stand fast and reject the tax. The A.F.L.-C.I.O., a
federation of nine million union members, has declared next Wednesday "National
Call-In Day" asking workers to call their lawmakers to urge them not to tax
health benefits. The International Brotherhood of Teamsters is urging members to
tell their representatives that "such a tax is simply a massive middle-class tax
hike that this nation's working families should not be forced to endure."
Many Democrats fear that enacting the tax will hurt their re-election
chances.
"This would really have a negative impact on the Democratic base," said
Representative Joe Courtney, Democrat of Connecticut, who has enlisted 190 House
Democrats to sign a letter opposing the tax. "As far as the message goes, it's a
real toughie to defend."
While union leaders would prefer killing the tax, some say privately that
they could live with it if the threshold is lifted to $27,000, say, or $30,000.
They argue that many insurance policies above $23,000 are typical of the
coverage in high-cost areas like New York or Boston, or policies that cover
small businesses or employers with older workers.
According to a union survey, one in four members would be hit by a $23,000
threshold, but only one in 14 if the threshold were raised to $27,000.
White House officials, however, voice concern that raising the threshold that
much would lose $50 billion of the $149 billion in revenue that the tax is
expected to generate over 10 years.
Those officials and Senate leaders argue, moreover, that unions are wrong to
fight the tax, saying that it will hold down health costs and that money
employers save on health premiums will ultimately go to higher wages.
Some experts say the taxfs main effect would be to deter insurers from
continually raising premiums. gThis is a tax on insurance companies, not on
workers,h said Erin Shields, an aide to Max
Baucus, Democrat of Montana, who is chairman of the Senate Finance Committee
and a chief sponsor of the excise tax.
gHealth care costs are rising much faster than inflation,h Ms. Shields said.
gImposing this tax will help hold down costs because it will give employers an
incentive to find a plan that falls beneath the threshold and will give insurers
an incentive to offer the best possible plan below the threshold.h
Ms. Shields defended Mr. Obama, saying the excise tax he backs is far
different from Senator McCainfs proposal. Mr. McCain called for eliminating tax
breaks for employer-sponsored health benefits, replaced with a tax credit to
help consumers obtain health insurance, Ms. Shields said.
She added that the measure Mr. Obama supports would tax only that part of a
family policy above the $23,000 threshold — which would be taxed at a 40 percent
rate.
But union officials say the tax will cause employers to push higher
co-payments and deductibles onto their employees. They argue that a fairer way
to generate revenue would be to embrace the House bill, which imposes an income
tax surcharge on couples earning more than $1 million.
Neither the House nor the Senate would seem to have much wiggle room on the
issue.
Senator Ben Nelson, Democrat of Nebraska, has said he would oppose any bill
containing the Housefs surtax. His vote was crucial in enabling Senate Democrats
to reach the 60 votes needed to pass the health bill over a potential Republican
filibuster.
The House bill, meanwhile, passed by only a five-vote margin, and at least
three Democrats who voted for it — Mr. Courtney, Phil Hare of Illinois and Carol
Shea-Porter of New Hampshire — have said they would oppose a final bill if it
contained an excise tax like the Senate version.
Jonathan Gruber, a Massachusetts
Institute of Technology economist, predicted the excise tax would raise
workersf wages from 2010 to 2019. gThere are many academic studies showing that
when health costs rise, wages fall,h he said. gIn the mid- and late 1990s, when
we got health costs under control, wages rose nicely.h But he added that other
factors could have also lifted wages during that period.
Leo W. Gerard, president of the United
Steelworkers, scoffed at arguments that by restraining health costs, the tax
would lead to higher wages.
gThe people who are promoting this tax say companies will make up for this
with higher wages,h Mr. Gerard said. gThese people who say that have never been
at the bargaining table. It doesnft work that way.h
Robert Gleason, chairman of the Pennsylvania Republican
Party, said Mr. Obama had made an about-face that would badly hurt the
president and other Democrats. gYou remember when the first President Bush said,
eRead my lips, no new taxes,f and he raised taxes and he went down to defeat,h
he added. gThis is the same thing.h
Michael P. James, a 57-year-old steelworker with the Timken
Company in Canton, Ohio, campaigned for Mr. Obama and is seething about the
tax.
gI donft think we should be penalized by this bill,h Mr. James said. gThe
president would be going back on his word. If he goes ahead and passes a bill
with the excise tax, I wonft be able to support him again.h