Excise tax: Bivens of EPI admits wage-benefit tradeoff

Do you watch the News Hour on PBS?  Well, you should.  Because they have incredible reporting and they go into depth about stories that need attention and light, and remove the heat.  Yesterday, Gwen Ifill, a journalist of unchallenged stature (well, leave it up to the Republicans to complain about her moderating a Vice Presidential debate), did something.  She put two policy wonk heads together: Josh Bivens of the Economic Policy Institue and Jonathan Gruber, a health economist at MIT.

There are a few striking things in the interview.  Apart from how civil  both of these people are to each other, it was quite interesting to see  them concede one major point to each other: Gruber concedes that the  excise tax is less progressive (but in his words, 'not that much less  progressive') than the millionaire's tax in the House.  This isn't something progressive proponents of the tax have ever argued with.  But contrary to its progressive opponents, Bivens seems to go against his own employer's report and a press release  with his name on it and admit that a tradeoff between wages and health  insurance exists.

You can read the transcript or see the video here.

First, Ifill discloses both that Gruber is a paid consultant to the Administration [HHS] and that Biven's employer, the Economic Policy Institute is partially funded by labor unions.  The President of the United States and his economic team are on the record as being supportive of the excise tax, the unions are strongly opposed.  I personally am on the record as being for it.  But just to do a little refreshing as to what each of them is arguing, and why they are for or against it, here it is:
JONATHAN GRUBER: ... I think it's a good idea because we need to look at what happens currently when people make the decision between getting paid in wages or health insurance. If MIT offers to give me a $1,000 raise, I'm only going to take home about $600, because I will get taxed at 40 percent on that raise. If MIT says, here's $1,000 extra fringe benefit in your health insurance, I get to keep the whole $1,000, because I'm not taxed on that.

That tax subsidy, employer-sponsored insurance, as it's called, costs our nation about $250 billion a year and leads, by many economists in the Congressional Budget Office's estimates, to excessive health insurance coverage and rising health care costs.

What this bill would do is slightly scale back that existing tax bias by taxing the most expensive plans on the amount they spend above a certain threshold, and basically scaling back the giveaway we now have to the most expensive health insurance plans.

This, by the way, is the essential argument for the excise tax, and for those of us who support it.  This, its potential as a cost control mechanism, as Gruber also notes (see below).  It is not an "Obama = McCain" problem, and it's not a 'corporatist' argument, as we have seen people on our side derided as.

Bivens outlines the case for the opposition:
GWEN IFILL: Let me just get -- get -- let Josh Bivens in here now, because he says it's a giveaway to the existing health insurance plans. What do you say?

JOSH BIVENS, Economic Policy Institute: I don't know if I would call it a giveaway. I do think it's not a great idea.

I mean, I think one problem is, it's often talked -- it's called a Cadillac tax. And the idea is that we're taxing somehow lavish plans that provide generous coverage. It's not very well targeted at all. I would be in favor of some sort of well-targeted way to do this, but this is a very poorly targeted policy proposal.
So the basic problem Bivens has with it is targeting, not the concept or the principle of having some sort of an excise tax.  This is where I think the opposition to the tax actually holds merit.  The excise tax can certainly be better targeted, as Paul Krugman outlined in his op-ed of qualified support.  Krugman urged for the tax to be variable by region and age.  I think that would be a good idea, given that both House and Senate bills allows insurance companies to vary their rates by age (as well as region).

Bivens also admits something most critics of the excise tax on the blogosphere have been absolutely hell-bent in denying:
JOSH BIVENS: ...I mean, one person's excessive benefits is another person's insulation from risk. And you have got people -- you know, I'm enough of an economist to actually believe people do trade off wages for these health insurance benefits. And they have kind of voted with their feet. And they clearly value these benefits.
Well, people - and employers - have certainly voted with their feet in favor of the the benefits, but as Jon Gruber mentions, the scale was tipped (I'd say rigged) in favor of health insurance benefits, since those are tax free, whereas our wages are not.

But the fact is that even Josh Bivens of the EPI admits that there is a trade-off (not that's not just the 'correlation' those of us favoring an excise tax have been talking about) between wages and health insurance benefits.  It is also doubly notable in the light of the fact that Bivens says this in the light that immediately before Bivens' above comments, Prof. Gruber just made the point that one result of the tax would be higher wages for workers, especially for middle class and upper-middle class workers:
JONATHAN GRUBER: ...the result will be higher wages for workers. And those higher wages, 90 percent of those higher wages will go to workers below $200,000 a year in income.
It does seem that Bivens agrees.  However, to me, this seems in direct contradiction to an EPI press release with his name on it just a week ago.

For his part, Gruber conceded that the House version's millionaire's tax was, in fact, the more progressive of the two approaches.
JONATHAN GRUBER: ...And I think the main argument for it -- I think Josh laid it out very well, actually. It's basically a tradeoff between -- [the excise tax] is less progressive, although not -- not that much less progressive, but somewhat less progressive, than what is proposed in the House.

On the other hand, it's generally viewed as one of the very few things we know can actually help with health care cost control, which is an important goal of this bill.
I will note that Bivens does not refute the idea of the excise tax being an effective cost control.  Of course, most everyone can agree that the millionaire's tax in the House is more progressive than the excise tax in the Senate.  But the millionaire's tax is not an effective cost control mechanism, whereas the excise tax is.

Both Bivens and Gruber agree that a compromise of some sort will have to happen in which the Senate will have to move a little towards the House's millionaire's tax and the House will have to accept some version of an excise tax.  Bivens makes an important point that an expensive plan isn't always a generous plan in today's "dysfunctional market," as he puts it.  Gruber argues that at that high a range, it actually is generous, but if Bivens is right, then we should be finding ways to insurance companies to just jack up prices on plans that they could offer for cheaper.  The excise tax is one way to do it, and under the minimal requirements, it can't exactly be "junk insurance."

At any rate, I hope you have all become a little more enlightened and a little less heated after watching that Bivens and Gruber debate.  Let's keep their level of cool and discuss things here in a level headed way.

Technical note: Emphases may be mine in quotes provided.

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