Debunking the EPI on the excise tax

[deaniac83]

I posted this on Daily Kos (http://www.dailykos.com/story/2010/1/11/823821/-Debunking-the-EPI-on-the-excise-tax), and on my blog, The People's View (http://www.thepeoplesview.net/2010/01/debunking-epi-on-cadillac-tax.html). Crossposting here:

The Economic Policy Institute report titled "Employer Health Care Costs Do Not Drive Wage Trends" has become the definitive study for those who oppose a "Cadillac (excise) tax" on expensive group (employer-provided) health insurance plans. The EPI report has been cited by prominent bloggers on websites like Daily Kos and MyDD to "debunk" the supposed "myth" that health care costs are not a factor in wage growth or decline. Well, it turns out that EPI gets it wrong on several fronts on the data and interpretation of the data alone. Their conclusions, to say the least are at best simply mistaken.

The EPI's report is based on three fundamental (and as I will demonstrate, mistaken) claims.

Claim One: "Health care costs are not large enough to substantially move wages."

It is easy to understand that health care cost trends have not been a significant driver of wage trends when one examines the scale of employer expenditures on health care. Health care costs were just 7.6% of total compensation and 9.4% of total wages (all wages paid, including premium pay, paid leave, and so on) in 2007.

Reading this, my first thought was a bit of disbelief. Really? Health care costs are just 7.6% of total compensation? If that's true and the cost of health care is that small a portion of total compensation, why would employers sweat the extra tax on a few of their employees' policies - or even all of them, if they offer Cadillac plans to all employees and they all pick it? Second question: if you're an employee whose employer provides health care and you know how much it costs, does it sound like less than 10% of your wages (at least the employer portion)? This would mean that your annual wages are over $230,000 if you have a family plan eligible for the excise tax, or over $85,000 if you have an individual plan that qualifies for the excise tax, if your employer plays the entire premium, slightly less if you pay part of it but still substantial.

But here is the bigger question. Is this true? The answer: of course not. You see, the EPI uses data from the Bureau of Labor Statistics (BLS). So far so good. And the data says that at the end of 2007, the employer cost for total compensation per hour per employee was $28.11 and total health insurance cost per hour per employee was $2.21. Turns out that's actually 7.9%, but whatever. By September 2009 (latest BLS data available), the number climbs to 8.1%. But here's the real problem: this is the cost for all employers put together and then averaged. But as we know, not all employers provide health coverage. So there were tons of employees who made wages but no health benefits as part of their compensation and they are averaged within that 8.1%. In fact, the Kaiser Foundation's most recent survey found that only 59% of the workers were covered by employer-sponsored health insurance in 2009. So that 8.1% expenditure is spread among 59% of workers, not 100%.

Adjusting for this factor, for the employees who do have employer-provided coverage, the cost of health insurance per employee per hour climbs to 14% of total compensation in 2009. And as a portion of wages only, it was 20% in 2009. And that's for your employer's side of the cost alone. It doesn't even count the employee contributions. That's also just the average. I would expect this percentage to be higher for employers who do provide high-premium plans. Moreover, under the status quo, these trends are heading up. Now does it look like health care costs are, as the EPI put it, "large enough" to move your wages? By the way, that figure of the average employer plan costing 20% of your wages? It matches up quite nicely if you consider that in 2008, the average family health plan cost $12,298, or about 18% of the median income for a family of 4 that year, $67,019. Yes, I know I'm doing a little rough justice by using the mean for one number and the median for the other (sorry for all the wonk talk), but I can't find the median in 2008 for a family plan, so I'm having to assume the mean is the median there.

More at:

http://www.dailykos.com/story/2010/1/11/823821/-Debunking-the-EPI-on-the-excise-tax

or

http://www.thepeoplesview.net/2010/01/debunking-epi-on-cadillac-tax.html

Alert: Might be wonkish

[Hello_Kitty]

1. You still haven't demonstrated to my satisfaction that this excise tax will increase wages

And certainly not to the tune of the $120 billion or so that will come from revenue from the taxes on those increased wages within 6 years of it's implementation. You cannot expect us to believe that the experience of the mid to late 90s will be repeated when we are in a totally different economic situation now.

[deaniac83]

4. Well, Kitty

First of all, the point of this specific post is to debunk EPI's numbers, which a lot of people have been using to scare people about the excise tax. Secondly, if you read the whole thing, you will see that EPI makes case for it themselves (such as saying employers will move money around in benefits, most of which is actually cash benefits that come to you in the form of a paycheck) in some places. Secondly, I love unions, but they are trying to have it both ways on this. You can't claim both that "we gave up wage increases to keep great health benefits" and then turn around and say that "oh but health benefits have no effect on wage!" Nah uh. No Ma'am. You cannot have it both ways.

[ProSense]

7. Excellent point. Also,

the Unions entire argument against this is that it will affect middle class workers who are paying a lot of money for mediocre benefits.

What exactly are they proposing: leaving this practice in place unchecked so that middle class workers aan contineu paying a lot of money for mediocre benefits?

The excise tax is going to be a win-win, helping to drive down cost and relieving middle class workers of this gross burden.

[Hello_Kitty]

11. Yeah, now they can pay more out of pocket for those mediocre benefits

Which means some of them will be less likely to get the care they need.

Win-win. :eyes:

[ProSense]

13. What the hell are you talking about? n/t

[Hello_Kitty]

10. An effect on wages one way is no guarantee that it will automatically work the other way

Union members who negotiated for good health plans in lieu of wages are not necessarily going to be able to get increased wages when the excise tax goes into effect and health plans are pared back. For example, most of the unionized workers in my state, Arizona, work directly for the government or have substantial gov't contracts. Our state is dead broke. We have a higher per-capita debt than CA. And we are constitutionally mandated to have a balanced budget. Therefore, any savings created by this excise tax on these gov't workers will most assuredly NOT be put back in wages. That's just one area that throws a monkey wrench in your projection.

[deaniac83]

17. Well, if your employer is dead broke

you have bigger problems than getting a less expensive health care plan. If they are broke, you aren't going to be able to keep your high cost coverage anyway, since they will drop it for something cheaper regardless of the taxes. Hell if it were a private employer, they might drop coverage altogether. So in that case, you're screwed no matter what happens with an excise tax. If you think a union is not going to be able to negotiate higher wages but is going to be able to negotiate higher cost health benefits (since the cost will continue to skyrocket under the status quo), I beg to differ.

There's a question of fairness, too. Say my employer doesn't provide health insurance. All of my compensation is in taxes. Let's say I make $50,000 a year. Let's say your employer provides health insurance, and the value for you is $10,000. Your salary is $40,000 a year. We both have a compensation package of $50,000. Yet, I pay taxes on the whole $50,000 while you pay taxes on only $40,000. Is that fair?

[Hello_Kitty]

27. That's all irrelevant to my point. That there is no basis to predict $120B in revenue.

But do let's talk about "fairness" for a sec, shall we? Let's see: If I and the guy in cube next to me do the same job and earn the same salary but he has a wife and 4 kids and I'm single or gay and the company doesn't recognize domestic partners, then he is getting THOUSANDS more in compensation than I am. Untaxed. Also, I can get drunk in Vegas and marry some random dude I met an hour ago and he'd automatically be eligible to get on my employer sponsored tax exempted insurance, yet I could not put my own sister on the plan if she needed insurance. Basically, my point is that the entire employer-based insurance tax exemption system is unfair as hell. It compensates people based on the number of dependents they have and not on the work they do. But just imagine the howling that would ensue if they ever tried to pass a law declaring no more tax exemption for the insurance you get on your dependents because single people don't get the same exemption. Including I'm sure from many in the "OMG it's sooooooo unfair that the uuuuunions get better coverage and aren't taxed on it!" crowd.

[deaniac83]

30. So your point is that one unfairness justifies another?

What kind of argument is that? I am gay myself, so it's not like I'm unaware of the workplace disparities. I'm lucky to live in CA where they do cover domestic partners like married couples. But that's not the case everywhere else.

But I find this line of argument fascinating: when one unfairness is brought up, the response is "yeah well, there are other things that are unfair too, therefore we should continue this unfairness?" That's a hell of a way to address unfairness.

[Hello_Kitty]

32. Which makes the example you chose to illustrate your fairness argument rather interesting.

You chose to use example of a person with an employer health plan vs. someone without one. It's fascinating that you would use the same talking point John McCain was using to defend his plan to tax all health benefits. And while it is true that one unfairness doesn't justify another, it's also true that selectively targeting one form of unfairness within a system while completely and willfully ignoring all the others is the height of hypocrisy.

Edit to add that it's especially hypocritical when you seek to remove one form of unfairness in a system while you personally benefit from another form of it and are at no risk of losing that benefit. Not talking about your situation since gay people's benefits are always under attack but don't expect to see anyone going after the tax exemption married straight people get on their health plans.

[deaniac83]

41. This is ridiculous

I'm not ignoring any unfairness. I'm telling you we can't solve all the unfairness of the world in one bill. But the ones we can solve, we should. You are saying that because we are not solving all these other problems, this one is good to leave in place. Then to tar it with McCain language. This is what people do when they can't defend their ideas. They point fingers at their opponents and say "so and so said it too." The plain fact is you cannot defend the gigantic taxpayer subsidy that goes into high priced health insurance plans while more and more people are losing their coverage.

And I have no idea what you are talking about in your second paragraph. It's unintelligible to me.

[Hello_Kitty]

46. And the plain fact is that you cannot defend the massive unfairness of the whole system

And really have no business making a "fairness" argument to justify this excise tax.

I'm going to ignore your insults and condescension and restate my second paragraph: If a person is, say, married then she is entitled to thousands of dollars in extra untaxed compensation in the form of employer provided insurance to cover her spouse. This is untaxed compensation that her single counterpart is not getting even though they may be doing the exact same job at the exact same salary. It is the height of hypocrisy for that person to turn around and complain that this other group over there is getting an "unfair" tax advantage. Especially since she is in no danger of losing her "unfair" tax benefit any time soon.

I might actually support this excise tax if it were an incremental step toward dismantling the entire unjust edifice that is employment based health insurance. But it's not.

[deaniac83]

47. I am not defending ANY

unfairness. You are. You are saying because all those other things aren't being changed, we should let this one go, too.

[Hello_Kitty]

51. I'm saying that your priorities aren't necessarily my priorities.

Frankly, I submit that the fact my married co-worker gets thousands more in tax exempt compensation than I do is far more unfair to me than people working for another company getting "Cadillac" health plans. Going by your own assertion that health insurance costs impact wages then it would be perfectly reasonable for me to conclude I'm making less money than I could be because my employers provide insurance to the dependents of my co-workers instead of putting it into my wages. Am I right, deaniac83? Do we really want to go down this path?

[karynnj]

43. Get your union to work on getting benefits for domestic partners

Though that unfairness is totally unrelated to the example deaniac83 gave - in fact, even though your partner is not covered, you and your legally adopted or biological kids are. In his example, he does not get even an individual plan.

It is ironic that you are saying that the employer based systems are unfair, after arguing that any taxation on even the most expensive package is wrong.

Yes, I know that you are attacking the savings as not reasonable, but that estimate is from models done by people with some expertise in economics, finance, statistics etc. Just saying that "little kitty" doesn't believe it is not really that compelling.

[Hello_Kitty]

48. Hmm, let me guess, you have insurance for your family through work.

So, how much more tax exempt compensation are you getting than your single counterpart does and why do you think that your particular "unfair" advantage is more sacred than others?

Yes, I know that you are attacking the savings as not reasonable, but that estimate is from models done by people with some expertise in economics, finance, statistics etc. Just saying that "little kitty" doesn't believe it is not really that compelling.

Um, the OP is "debunking" the work of people with similar expertise. Who happen not to agree with the administration's line.

[karynnj]

55. Your reading comprehension is poor

I asked why you don't push unions (or companies) to treat gay families the same - the company I worked for does. That does not say that my family is more entitled than yours.

The OP debunks the study not just by saying - "I disagree therefore it has to be wrong", he/she looked at the paper looked at the assumptions and at the data. He/She then showed pretty clearly mistakes made. The work in the study you have posted everywhere is pretty shoddy. The part excerpted here is a clear example - the idea that health care was such a tiny part of total compensation should not have passed a "sanity check" and they should have seen what the op explained - that their ratio included many with zero costs for health care, pulling the average down. This was either shockingly careless or intentional. Either rather damns the study.

[Hello_Kitty]

57. I'm sorry but your post is incomprehensible to me.

I read it 3 times.

As for the OP, notice in this thread I've pointed out several times that journalists and politicians are claiming the JCT says that more than 80% of the revenue produced from the excise tax will come from increased wages. I've provided links. He conveniently ignores it and proceeds to insult and belittle me. When I express doubts about the $125 billion that proponents of the tax, including members of Congress, claim it will raise, he refuses to address it and then denies anyone ever said it. So his research may be stellar but his manner is boorish and pedantic and he has a very poor way of dealing with questions and doubts.

[spoony]

8. You can read in their replies, they want to fuck the unions.

They're the New Democrats and they want to stick it to the old foundation.

[ProSense]

9. That's such a nonsensical argument.

When the unions were strongly opposing the Wyden amendment, anyone standing up for the unions were charged with being against average people, and the unions were accused of not representing the vast majority of their members.

You can't have it both ways.

[spoony]

14. Yeah I've heard your bullshit before

I know where you stand on unions, which not coincidentally is where the rest of your lot stand, too. The evidence is smeared all over DU like bird shit. Any health care thread in the last week or so contains this new talking point, pushed by guess who.

[ProSense]

16. You're clueless. Utterly clueless. n/t

[spoony]

19. Nope, just onto you, like everyone else. nt

[ProSense]

20. "like everyone else" need that crutch, do you? Like I said, utterly clueless. n/t

[Hello_Kitty]

15. John Kerry and other Dems also opposed it and John Ensign praised it.

Sorry, but you ain't gonna get any traction by flogging the Wyden Amendment.

[ProSense]

18. What does that have to do with the point? n/t

[deaniac83]

21. I am very intrigued

that when proponents of the tax name prominent progressive economists (i.e. experts in the field) who are for the tax, we are dismissed for appealing to authority. Yet, the opponents have no problem determining the worth of this idea with the political divide line, even though this excise tax is not even remotely close in its construct to what the Republicans would have.

[Hello_Kitty]

24. I'm not appealing to authority here

I'm merely pointing out to ProSense that unions weren't the only opponents of the Wyden Amendment, yet they are the only ones who are the targets of her ire for it.

Yet, the opponents have no problem determining the worth of this idea with the political divide line, even though this excise tax is not even remotely close in its construct to what the Republicans would have.

Funny you should mention how Republicans support taxing insurance benefits. The difference between their position and that of liberal proponents of this excise tax is a matter of degree, but not kind. If they really wanted to design something that didn't end up impacting the middle class they would have put an income threshold in addition to the premium limit in it.

[SpartanDem]

22. So FDL , Kos supported it

[Hello_Kitty]

25. And?

I was ambivalent about it myself. The pro was that it would let people choose to go on the exchange if they preferred it to their employer plans. The con was that people who preferred their employers' plan could be facing higher premiums if the young healthy workers were lured into cheaper (for them) plans on the exchange. So I can see why there would be a wide variety of stances on it.

[deaniac83]

28. Floggint the Wyden amendment?

Unions are dead set against the Wyden amendment:

http://www.politico.com/livepulse/0909/AFLCIO_trashes_Wyden_amendment_.html

[Hello_Kitty]

29. I know that. ProSense is engaging in a ridiculous attempt to do a "gotcha" re unions. eom

[gravity]

36. Even if it doesn't affect wages, it will pay to expand healthcare coverage

The money is going from people who can afford expensive healthcare plans to people who can't afford any.

[Hello_Kitty]

38. Then they should stop claiming specific, and large, dollar amounts based on wages.

They're not saying "we think this tax may have some impact on wages based on past data". The JCT predicts that $125 billion (that's with a B) will be raised in the form of taxes paid on increased wages, within 6 years of its inception. That number is being used to sell this plan in comparison to the House plan, which places a surtax on the wealthy and has a far more reasonable basis to predict how much revenue they will raise from that. Projections from this excise tax are based on far too many unknowns for my comfort.

[deaniac83]

42. nobody

claimed a dollar amount based on wages alone. You either don't understand what CBO and JCT said, you are making things up.

But it is no joke that wages will increase. That's backed up by JCT, CBO, 24 renowned economists including Paul Krugman, the Center for Budget and Policy Priorities and policy analysts for multiple newspapers.

Look, I have no interest in debating with someone who is either ignorant or willfully dismissive of the facts. Have a nice day.

[Hello_Kitty]

53. You have a nice day too but I'm not letting you get away with this.

People ARE claiming that specific dollar figures are going to be coming from increased wages. I linked you to an instance of people doing just that. You can google and find numerous examples of people pushing the Senate bill and making the increased wages claim. Most people do not read economists' papers. They read news stories and hear what pundits and politicians are telling them. This excise tax is being "sold" based on the idea that it will lead to increased wages, and not very well I might add since it's hugely unpopular with the public.

[gravity]

45. This tax is designed to change behavior in our healthcare system

Which is why it is being implemented. It is one of the tools that overall can bring down the costs of healthcare. The current tax structure gives little incentive for employers for negotiate against insurance companies over giving the money back to employees. This leads to overpaying for insurance, which contributes to our inefficient system. A straight income tax doesn't address this problem.

And it is reasonable to assume that some of the cost savings will be passed on to employees, it is only a question of how much. It is only fair to give a ball park estimate on what the savings are even if it is unreliable.

They should probably tax income on top of it too to give out more subsidies, but it is a separate issue.

[Hello_Kitty]

54. "even if it is unreliable." nuff said. eom

[FrenchieCat]

2. I rec'ed this......

but It may be far too wonkish for those who unrec'ed to actually refute what you wrote.

I didn't comment, because I have commented on this, and I agree that this tax is not the
boogieman we are supposed to believe....and that in fact its purpose is exactly what we
should want, to bend the curve of health care insurance.

[Hello_Kitty]

3. They are claiming it will raise $120 billion in revenue from increased wages.

That's more than just "bending the cost curve" (a weaselly phrase I've grown bone tired of).

[deaniac83]

5. Not really

I assume you're getting the $120 billion figure from doing a straight 80% figure on the $150 billion it's expected to raise, and only about 20% of it is directly from the tax. The revenue isn't affected all that much whether employers give you wage increases or put it into their bottom line, either way, the government gets taxes out of it. But wages - at least cash compensations - will rise from a downward pressure on the growth of the cost of health insurance coverage.

[Hello_Kitty]

34. I'm not the one claiming 82% will come from wage increases, the JCT is.

Their numbers, not mine.

[deaniac83]

40. JCT is claiming that

it will come from other sources as a result of employers having more money - some of it will go to the employee, who would pay income taxes and payroll taxes, and whatever goes to the bottom line will pay corporate taxes.

[Hello_Kitty]

44. Really? Someone should tell these people:

Furthermore, JCT reports that most of the affected health insurance plans would not actually pay the excise tax. Employers would modify their health plans to stay within the thresholds for the excise tax, and they would convert the resulting savings into higher wages or other fringe benefits for their employees. JCT estimates that over 80 percent of the revenue raised by the proposal would stem from income and payroll taxes on these higher wages.


http://www.cbpp.org/cms/index.cfm?fa=view&id=2957#_ftn11


Of course, "corporate taxes from more money going to the bottom line" doesn't sell as well as "higher wages to employees" does it?

[deaniac83]

49. Higher wages OR

other fringe benefits.... they are not all in the form of wages. I noted what some of those benefits in the original post, which it doesn't seem like you bothered reading. Also, read the actual JCT report

http://www.jct.gov/publications.html?func=startdown&id=3641

which doesn't actually specify what exactly is going to give what type of revenue. CBO's guess is wages and other things combined. What I pointed out was that whatever employers do with the extra cash, it doesn't affect the revenue model much. Which, of course, someone will not acknowledge lest she has to concede a point.

Oy.

[Hello_Kitty]

52. Well you better take it up with the people I linked you to.

And everyone else who is going around touting this "82% of revenue will come from increased wages" line. It didn't come from nowhere.

[janx]

6. Wow, you certainly put in some time here.

Yep, it's wonkish, but I wish more people would take the time to investigate. Good job. K&R

[deaniac83]

12. Thank you!

I actually didn't know I was this wonkish until I started researching this health care legislation. There are more wonkish posts from me on that blog of mine (www.thepeoplesview.net).

[janx]

23. I urge everyone to access this blog!

:rofl: Good God! How many calculators? How many hours? How many sources?

[deaniac83]

26. Lol!

Well, one laptop, Google, and lots and lots and lots of reading. And doing numbers.

[Cha]

31. Kick for The deaniac's

report on debunking the EPI on the excise tax.

[FrenchieCat]

33. Hi Cha!

::hippie:

[Cha]

35. Frenchie~

B-)

[Clio the Leo]

37. Interesting read. Thank you. NT

[deaniac83]

39. No problem! n/t

[Vattel]

50. Interesting post; thanks for your efforts.

You would need to say more for your fairness argument to be convincing (I'm referring to your debate with my favorite feline at DU.) If the government arbitrarily taxed all of my compensation and only part of yours, that would be unfair. But the argument can be made that the disparity in question is not arbitrary, that there is an adequate justification for not taxing healthcare benefits, namely that it encourages employers to provide such benefits. Moreover, many union members sacrificed a lot to get some of their benefits whereas no comparable sacrifice was made by most people who do not get comparable benefits. Finally, why should the "unfairness" here be addressed in a half-assed way by bringing some of the unfairly advantaged (those with "cadillac plans") down to the level of other unfairly advantaged individuals (those with untaxed coverage but no cadillac plan) leaving the unfairly disadvantaged still unfairly disadvantaged? Wouldn't one completely eliminate the unfairness in question by allowing individuals who purchase their own health insurance to deduct the money they spend from their taxable income? Feel free to point out mistakes in my reasoning. I haven't thought much about these things, and so I could be full of shit.

[Hello_Kitty]

56. Here's yet another person repeating the claim that JCT says 80% will come from wages

'm not getting this information from some secret source passing me documents in a parking garage -- it's from an analysis last month by the staff of Congress's Joint Committee on Taxation for Rep. Joe Courtney (D-Conn.). Courtney opposes the tax, but that doesn't affect the numbers because the committee's staff is a well-respected, nonpartisan operation. To see the report, go to http://www.tinyurl.com/courtneyjc.

The tax is projected to raise $149 billion for the 10 years ending in 2019 (on Page 4, for those of you tracking this online). Only $26 billion of this -- less than 20 percent -- would come from payment of the excise tax itself. The rest, more than 80 percent, would come from higher income, Social Security and Medicare taxes on individuals.



http://www.washingtonpost.com/wp-dyn/content/article/2010/01/11/AR2010011103591.html?hpid=topnews


Yeah, I'm not just imagining it.