Obama Exempts Unions from Cadillac Tax, For Now…

January 14, 2010

After the Senate passed their version of Obamacare health care reform, the labor unions began to object to the tax on the so called Cadillac insurance plans.  Today, the administration is announcing that they have reached a deal with labor leaders to gain the support of the nations unions.

The terms of the deal will increase the Senate’s threshold on plans costing over $23,000 to $24,000.  The change would also remove dental and vision plan costs from the calculation of the total cost of a plan.  In addition, the plan will exempt collective bargaining agreements made prior to 2013.  This would in effect, exempt union members from having to pay taxes on Cadillac insurance plans that the rest of Americans will have to pay until roughly 2015 to 2017.

How do the unions benefit from being exempted from the tax for the first 5 to 7 years?  They would have to either believe that there will be an amendment to the final bill or another bill exempting them forever.  There is also the possibility that they have agreed to lower the coverage of union health insurance plans to come in under the cap and avoid paying the 40% tax.  The first option is probably more likely.  Another scenario is that the Democrat leadership has agreed to bring the Employee “Free” Choice Act to the floor soon.

However, as pointed out at HotAir.com, this presents a number of problems for the bill.

First, this will lower the tax revenue that the health care reform bill has established.  If you ever believed the accounting tricks that said the bill was deficit neutral, the missing revenue from taxing Cadillac plans will put further pressure on the deficit.

Another problem with the health care reform bill is that they also plan to index the $24,000 cost to a yet to be determined cost of living adjustment.  So if you live in a state that insurance is relatively more expensive, your limit may be $26,000 rather than $24,000.  This provision raises questions of constitutionality as Article I, Section 8 of the US Constitution that states that Congress has the power to levy taxes, “but all Duties, Imposts and Excises shall be uniform throughout the United States[.]“ 

It will be interesting to see what happens over the next 2 months as more an more special interest groups like Unions oppose the bill and are given special deals to support it.  Hopefully, Congress will eventually start to listen to the most important special interest group in the Nation, the American tax payers who are overwhelmingly against Obamacare style health care reform.

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