Federal Judiciary

The Labor Loophole -- By: Rich Lowry

What happens when the irresistible force of the Democratic urge to tax runs up against the immovable object of Democratic loyalty to the labor unions?

Another ugly deal in a health-care bill that already was a grotesquerie of pay offs to favored politicians and interests. The levy in question is a 40 percent excise tax on high-end employer-provided insurance plans that -- typically -- has been sold as a tax on ?the rich.? It?s called the ?Cadillac tax,? a name redolent of corporate executives cackling in their Escalades over their cushy benefits.

The unions, which make it a point to negotiate generous insurance plans with their employers (to the point of bankrupting them), were chagrined to learn that for purposes of this tax, they?re among the rich. They howled in terms that could have been drawn from Henry Hazlitt?s free-market classic, Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics.

The excise tax is supposed to be paid by evil insurers and employers. Except in this one case affecting their self-interest directly, the unions see through the fiction and understand that the tax will trickle down onto them. How disorienting to hear unions implicitly recognize that corporations ultimately don?t pay taxes, their customers and employees do.

?While the excise tax is slated to be imposed on the insurers on so-called high cost plans, the tax will be passed on to enrollees in the form of higher premiums, co-pays or reduced benefits,? a coalition of public-employee unions wrote congressional leaders. ?Characterizing this tax proposal as a ?Cadillac tax? is a misnomer. It hits the average blue collar and white collar employee.?

The unions also bristled at a fairly typical trick of liberal taxation -- bracket creep. The Cadillac tax affects few people when it begins in 2013. Since it?s not indexed to account for the ever-rising expense of health care, though, it will catch more and more people over time.

This is why New York Times columnist Bob Herbert called it ?a middle-class tax time bomb,? and Nancy Pelosi made an oblique reference to Pres. Barack Obama breaking his promise not to increase taxes for anyone making less than $250,000 a year. Obama?s support for the Cadillac tax not only violates that forlorn pledge, but directly contradicts one of his chief lines of attack against John McCain in the 2008 campaign.

McCain wanted to end the tax exemption for employer-provided insurance coverage and compensate people with a tax credit to buy their own plans, a systematic approach to controlling costs and increasing choice. Obama?s plan will increase costs and reduce choice, but he needs $150 billion in revenue over ten years to try to make it look deficit-neutral, so he?s -- as he put it in his unrelenting anti-McCain ads -- ?taxing health benefits for the first time in history.?

But pressure from the unions has now forced the White House to agree to raise the $23,000-per-household threshold of the tax slightly and -- more importantly -- exempt insurance plans that are the product of collective-bargaining agreements until 2018. This Labor Loophole stands in the finest tradition of the Louisiana Purchase and the Cornhusker Kickback. With no possible public-policy justification, it puts the awesome power to tax and spend at the service of nakedly political ends.

Oliver Wendell Holmes famously said that taxes are the price of civilization. In this case, taxes are the price of not belonging to a group that pours countless millions of dollars into the Democratic coffers. Under the Cadillac tax, there?s one set of rules for the Service Employees International Union and another for everyone else.

Obama is currently haranguing the banks so he doesn?t get pegged as a ?Wall Street Liberal.? The more dangerous rubric for him is a ?Washington Liberal,? a politician knee-deep in the special-interest politics of the Beltway as he pushes an unpopular agenda of rapid government expansion. Obama?s style of politics has gone from inspiring to revolting in the space of a year.

Full post as published by Bench Memos - National Review Online on January 15, 2010 (boomark / email).