Repeal of the Cadillac Tax Would Be a Strategic Mistake for Both Parties

"For Democrats, the rush toward repeal is particularly perplexing. This is a tax that was instrumental to the passage of the ACA. The Obama administration and many House Democrats were adamant that the ACA would not only extend insurance enrollment to many millions of uninsured Americans, it would do so while also reducing the federal budget deficit over ten years and the long-term. At the time of enactment in March 2010, the Congressional Budget Office (CBO) confirmed that the bill would reduce the government’s ten-year and long-term budget deficits. The Cadillac tax was an important reason why CBO projected the law’s taxes would exceed the costs of subsidizing coverage for the uninsured.

Further, the Cadillac tax was part of the “kitchen sink” approach to cost-control promoted by Obama administration officials. The authors of the ACA claimed they were willing to include in the legislation any and all good ideas for reining in spiraling health-care costs. President Obama was sold on the need for the tax as a cost-control device for private coverage despite the fact that he had attacked Senator John McCain in the 2008 presidential race for supporting the taxation of health benefits for “the first time ever.” CBO and other analysts expect the tax will work to control costs by encouraging companies to seek out less expensive coverage to avoid the tax (federal revenue rises when this happens because employers substitute higher cash wages, which are taxable, for untaxed fringe benefits). The president took a lot of heat for this flip-flop, but he and his advisers believed the benefits of the tax were sufficient to justify the political turbulence it would, and did, generate."