(Bloomberg) — The House voted overwhelmingly to repeal a tax Wednesday intended to fund the Affordable Care Act, preserving tax breaks for employer-sponsored insurance plans favored by large corporations.
In a reversal of the usual partisan roles, Democrats rather than Republicans led the charge to kill a key part of Obamacare.
The bill to repeal the levy commonly known as the “Cadillac tax” passed 419-6 with bipartisan support. The 40% excise tax on the most generous and expensive employer health-insurance plans was included in Obamacare as a measure that economists said would help curb health costs.
Congress kept delaying its implementation so the tax has never actually been collected. Had it gone into effect, it would have hit about one in five employers that offer health benefits to their workers, according to estimates from the Kaiser Family Foundation.
The vote to repeal the tax highlights the conflicting forces pulling at Democrats when campaigning versus legislating.
Several of the party’s presidential candidates led by Senators Bernie Sanders and Elizabeth Warren support replacing nearly all private insurance with a government-run system financed by tax increases. Former Vice President Joe Biden, the front-runner in the race, has a less sweeping plan to bolster Obamacare, but it still would offer a public health insurance option funded by tax hikes on the wealthy.
But in Congress, Democrats and Republicans are facing pressure from labor unions and large companies to move in the opposite direction by keeping tax advantages for employer-sponsored plans. Supporters of repealing the tax say keeping it in place would force employers to offer less generous health insurance to their workers.
Employers can reap large tax savings by compensating their employees in the form of more extensive health insurance, rather than wages, which are subject to payroll taxes. Employer-paid premiums are exempt from federal income and payroll taxes, and the premiums employees pay are also often excluded from taxable income.
“I’ve been a supporter of the Cadillac tax because I thought it would” lower health care costs, said Representative Steny Hoyer of Maryland, the No. 2 Democrat in the House. “But I’ve read some additional material on it and it’s obviously overwhelmingly thought this will not have the effect in terms of raising money or controlling cost that I thought it would have.”
The dissonance among Democrats about whether to expand or shrink employer-sponsored health coverage makes them look like “gymnasts,” said Representative Mike Kelly, a Pennsylvania Republican.
“Where are you on this stuff?” he said. “Wait a minute, you’re all advocating that there be no such thing as employer-sponsored coverage.”
The repeated delays in imposing the Cadillac tax delays mean that Congress was never able to test whether it would curb the explosion of health care spending, which has risen an average 4.2% every quarter between 2010 and 2018, according to data from the Kaiser Family Foundation.
The repeal also would mean that the Treasury Department won’t collect the $201 billion the Joint Committee on Taxation estimated it would raise over a decade.
Obamacare included several other tax increases, including a 3.8% tax on investment income and a 0.9% levy on wages for top-earners. The portion of the law that was supposed to be financed through the Cadillac tax instead would be paid for through deficit spending, unless lawmakers propose a last-minute tax increase to offset the cost.
Democrats have generally opposed measures to chip away at President Barack Obama’s signature legislative achievement, but the Cadillac tax has been unpopular since it became part of the code.
The measure to repeal it, H.R. 748, was passed under a fast-track procedure requiring two-thirds support among House members.
Yet popularity doesn’t necessarily mean good policy, said Marc Goldwein, senior vice president at the Committee for a Responsible Federal Budget. Politicians don’t like the tax on health benefits, but nearly every economist thinks the Cadillac tax or a similar measure is necessary to help slow the rise in health-care costs and curb overuse of health services, he added.
“Just because it’s bipartisan doesn’t mean it’s good,” he said.
Not all Democrats are on board with eliminating the tax. Representative Ron Kind, a Wisconsin Democrat, said he opposes the repeal because the cost isn’t offset and there wasn’t any discussion about how scuttling the tax would affect the Affordable Care Act overall.
“I think we are lapsing into some very bad habits in the majority,” he said. “We need to start instilling some fiscal discipline in this place and making some tough decisions.”
Senate Majority Leader Mitch McConnell, a Kentucky Republican, hasn’t committed to addressing the issue in his chamber. Because the repeal effort is led by Democrats, it sets up a path for McConnell to use it as a vehicle to attach Republican tax priorities, such as correcting errors in the 2017 tax law or extending several expired tax breaks that benefit the biodiesel and energy industries.
“We’ve kicked the can down the road for so long on this one that the assumption is that it’s never going to go into effect,” said Representative Dan Kildee, a Michigan Democrat. “There’s a certain inevitability to this one getting repealed.”
–With assistance from Emily Wilkins.
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