Is the Excise Tax Progressive?

On the left, one controversial part of health-care reform is the Senate's health insurance excise tax, which forces insurance companies to pay a tax on high-cost insurance plans. Unions oppose the tax because many of their members have expensive health benefits in lieu of higher wages -- leaving them more vulnerable to its effects -- while health wonks love it because it provides an incentive for insurers to rein in costs on their most expensive plans. The Center for Budget and Policy Priorities has pretty much convinced me that the excise tax, properly tailored, is a good idea. Now here's Ezra making the progressive case for the tax:

The reason is that, unlike the House's surtax on family income over $1,000,000, the excise tax on high-cost insurance plans is not simply a tax. It's also a policy. Economists believe, with substantial evidence, that it will restrain the growth in health-care costs by making employers less willing to pay the automatic increases that insurers pass down each year. That money, they believe, will be routed back into wages. This is not intuitive, but it is, again, heavily backed up by evidence.Few forces in American life are as regressive as the rise in health-care costs. At the bottom of the income scale, the rising costs make it impossible for employers to offer insurance coverage and convince some employers to end their health benefit programs, throwing their workers into the ranks of the uninsured. Moving up, working-class folks see their wages stagnate and their premium payments increase.

Ezra emphasizes the evidence because many of the arguments against the tax are simply that economists don't know what they're talking about it -- it's just the "egghead economist approach," says the AFL-CIO's Jerry Shea. But barring better arguments, I think labor is wrong on this one. An excise tax, appropriately targeted, is what one administration official calls "a revenue raiser and a game changer": It doesn't just cover the costs, it brings them down, too. That means both more subsidies for low-income health care and cheaper premiums for everyone; if economists are right, it also means higher wages.

-- Tim Fernholz