Legal Commentary

Debunking The Excise Tax As Wage Raiser Myth

By Big Tent Democrat

Many people have argued the fanciful notion that the excise tax on health care plans (the so called "Cadillac" tax) will lead to increased wages. Indeed, the CBO and the JCT have adopted these assumptions in their scoring of the Senate health bill. The Economic Policy Institute, where Biden economic advisor Jared Bernstein worked prior to joining the Obama Administration, does a thorough debunking (PDF) (here is the press release (PDf) (which includes comments from Robert Reich, Rep. Joe Courtney, and EPI economists Lawrence Mishel and Josh Bivens):

One claim for the Senate excise tax has recently surfaced: that health care cost increases have been a major driving force in constraining wage growth and that wages will grow more strongly by curtailing employer health costs via the excise tax. This claim boldly asserts that health care costs are large enough (and the tradeoff with wages is large enough) to drive major changes in overall wages.

[More...]

[. . .] Clearly, this “health care theory of wage determination” is wrong, and other factors explain these overall wage trends [of the 1990s.] The simple explanation is that productivity accelerated in the mid-1990s, and the low unemployment (and hikes in the minimum wage) facilitated faster wage growth. That this wage growth disappeared entirely in the 2002-07 recovery is not due to faster health care cost increases but to weak employment growth and employers’ ability to achieve increased profitability rather than pass on productivity gains to workers. This reveals a fundamental flaw in our economy: productivity gains are not passed on to higher living standards for workers.

Read the whole thing. You will see that a progressive will have to ignore the obvious to accept the fanciful theories being championed by supporters of the excise tax.

Speaking for me only

Full post as published by TalkLeft on January 06, 2010 (boomark / email).