One enduring feature of the American political landscape is that people seem to have very unsound intuitions about how tax incidence works. Thus, people hear about the idea of cutting the gas tax and they assume 100 percent of the benefit will go to consumers and none to oil companies. But when they hear about taxing “windfall profits” of oil companies, they assume all the burden will be borne by the companies and none by the consumers. That’s not how the world works. But it means you can often take a good idea, and turn it into a more politically palatable one, by messing around with the implementation details to make it seem like a tax on evil corporations rather than a tax on people who buy products from evil corporations.
Thus, via Jonathan Cohn, Barack Obama floats the potentially promising idea of “a variation that goes after the insurance companies, as opposed to directly taxing the benefits.” Given the progressive nature of the income tax, it would probably be difficult to formulate a version of this that’s exactly equivalent to proposals to curb the current tax exclusion of health benefits. Indeed, you’d probably wind up coming up with something that’s somewhat less progressive. But I’m glad to hear folks are poking around in this neighborhood and hopefully they’ll come up with something clever and workable.