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Labor leaders object to 'Cadillac tax' for healthcare

A dozen of them meet with President Obama to voice opposition to the proposal, which the president supports. One says union members could skip November's election if they don't get their way.

By Peter Nicholas

January 12, 2010

Reporting from Washington

Underscoring a rift in the Democratic political coalition, national labor leaders met with President Obama on Monday and raised objections to a proposed tax that they said would harm union members and cause a backlash in the November midterm election.

Obama has come out in favor of the "Cadillac tax" that is part of the healthcare bill passed by the Senate. The tax, meant to help finance the healthcare overhaul, would apply to the most expensive insurance plans.

The House has an alternative: a new surtax on single taxpayers making more than $500,000 a year and couples earning more than $1 million. The two bodies are working out a compromise in private.

The dozen labor leaders, who spent two hours with Obama and White House officials, said they preferred the surtax on wealthy Americans, according to a person familiar with the meeting who was not authorized to discuss it publicly.

They also told Obama that the healthcare "exchanges" envisioned in the bill, intended to help many Americans buy insurance policies, should be national in scope -- not state-based -- so as to provide more competition for the insurance industry, the person said.

Participants included James P. Hoffa of the Teamsters, Richard Trumka of the AFL-CIO and Gerald McEntee of the American Federation of State, County and Municipal Employees.

The White House gave no details on the meeting except to call it "productive." A spokesman for one of the labor leaders in attendance said the White House had asked the unions not to discuss the meeting with the news media. As a candidate in 2008, Obama promised that healthcare negotiations would take place amid unprecedented transparency. That hasn't happened.

Labor leaders have warned that the Senate tax, if left intact, would amount to a middle-class tax increase -- something Obama had promised to avoid. They contend the tax would hit everyday workers who are covered by expensive insurance plans and who in many cases gave up wage increases to get the health coverage in hard-fought negotiations.

Appearing at the National Press Club on Monday before the meeting with Obama, Trumka told reporters that organized labor -- which was crucial to the Democrats' election victories in 2008 -- might stay home in the midterm election this fall if the healthcare bill is not to their liking.

"I think there's that chance" that union members will boycott the election, Trumka said.

In his speech at the press club, Trumka said: "The tax on benefits in the Senate bill pits working Americans who need healthcare for their families against working Americans struggling to keep healthcare for their families. This is a policy designed to benefit elites -- in this case, insurers, hospitals, pharmaceutical companies and irresponsible employers -- at the expense of the broader public."

Many healthcare economists believe that such a tax will help restrain healthcare spending by discouraging overutilization of services by people who have to pay very little for the care they receive.

A compromise may be in the offing. Democratic negotiators are exploring a possibility that would not eliminate the tax entirely, but raise the threshold at which it applies in order to ensure that more middle-income Americans are spared.

To make up the lost revenue, Democrats might boost the Medicare payroll tax on high-income Americans.

The Joint Committee on Taxation estimated last month that the "Cadillac tax" would generate nearly $149 billion over the next decade. Much of that would come from income taxes paid by workers, under the assumption that businesses would trim back health plans to avoid the new tax, then raise wages to make up the difference to their employees.

House Democrats rejected the tax amid pressure from labor and other interest groups.

peter.nicholas@latimes.com

Noam N. Levey in the Washington bureau contributed to this report.

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