Senate committee confirms Baucus plan will lower wages

The Joint Congressional Committee on Taxation has analyzed the excise tax in the Baucus plan and come to the logical conclusion that it will raise prices for insurance policies. In two letters issued yesterday, the JCT acknowledged that the increased premium costs for health-insurance plans that qualify for the excise tax will increase costs to employers offering them, depressing wages directly or indirectly as a result, depending on whether they impose the total cost increase on employees. The second letter demonstrates that the effect of the Baucus plan and its disappearing subsidies on lower-income workers is to force them into a higher tax bracket, disincentivizing gains in employment.

First, let’s look at the impact the Baucus plan has on effective marginal tax rates for Americans:

If that looks a little regressive to you, you’re not alone.

The JCT also offered this analysis of the impact the plan will have on wages:

Many employers share the cost of the insurance they provide with their employees; that is, the employer pays some portion of the insurance premium, and the employee pays for some portion.  To the extent that the increased cost of the insurance policy is paid by the employer, we would expect that to exert downward pressure on wages paid by the employer.  To the extent that the increased premium cost is paid through the employee share, the added cost of the excise tax can be expected to reduce consumer demand for high cost insurance products.  Over time, the downward pressure on wages attributable to the employer share of the increased cost would also reduce consumer demand for high-cost insurance products.

The problem with that is the definition of “high cost insurance products”.  The JCT is not talking about the upper 5% of health-care plans, not even in the initial year.  In the first year of the tax, the JCT predicts that 11% of all plans will be subject to the excise tax.  By 2019, the JCT predicts that a third of all policies will carry that tax, increasing costs and depressing wages in one form or another.

This also points out the earlier fallacy of the excise tax.  The JCT explicitly notes that the higher costs will drive people away from these policies.  That will have the effect of putting more costs on the insured through higher co-pays and fewer covered choices.  However, the big problem for the Baucus plan is that it will also reduce the expected revenue from this tax, which means that it will fail to cover the costs and remain deficit neutral, even in the short term.

Baucus offers the US a broad-based, expensive disaster.  It produces lower wages and higher costs instead of the other way around.  Who wants to support that kind of outcome?

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Jazz Shaw 5:31 PM on February 04, 2023