Change, But Not Too Much of It

David Leonhardt writes in favor of taxing employer-provided health care benefits as a form of income. Which, after all, is what they are:

As a result, the tax exclusion ultimately raises your tax bill, via wasteful Medicare spending. Indeed, if there is a single health care idea on which liberal and conservatives agree — including Douglas Elmendorf, director of the influential Congressional Budget Office — it’s scrapping the exclusion.

Yet many politicians are loath to come out against the exclusion, for the obvious reason that it makes them sound pro-tax. The Blue Dogs may be the best example. They have rightly pushed House leaders to be tougher about holding down cost growth. But most Blue Dogs have not been willing to get specific, on the tax exclusion or most everything else.

The other problems, aside from general tax-aversion, is the loss-aversion of the American public. There’s a real substantive problem with just scrapping the tax exemption, namely that doing so would cause the employer-provided health care system that covers the bulk of non-elderly Americans to start to unravel. Any proposal to do this needs to come up with some alternative sort of health care system for people to transition into. During the 2008 campaign, John McCain proposed shifting people into the tender mercies of the individual health insurance market, which is a terrible idea. He got hammered for this, and rightly so, by people on the left. The progressive alternative would be that people would transition, over time, from the current group health insurance markets into a regulated national “exchange” featuring community rating, a minimum benefits package, a public option, etc.


But obviously we flatter ourselves too much if we say that the effectiveness of hitting McCain on this had to do with the public’s nuanced understanding of the flaws in the individual market and the virtues of the regulated exchange. I myself am familiar with the thrilling tale of the successful Dutch health care model but as a general matter McCain’s critics were exploiting voters’ fear of the new and unknown. And both the progressive and conservative alternatives to the status quo would be new and unknown. Which leaves progressives looking at very modest forms of change in which, as Leonhardt says, “Congress would also probably have it apply only to the most expensive sliver of plans.” That’s fine as far as it goes, but it leaves you needing to raise some other kinds of taxes to generate necessary revenue. And even though the slow pace of change is reassuring to people, it also means that some of the largest virtues of the Exchange-based utopia of the future will come into place very slowly.