Senate Finance Committee Member Pat Roberts (R-KS) has introduced a bill to repeal the excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. on high-cost employer-sponsored health insurance plans.
Known as the “Cadillac TaxThe Cadillac Tax is a 40 percent tax on employer-sponsored health care coverage that exceeds a certain value. The aim: to curb health-care cost growth, reduce favorable tax treatment of employer-provided insurance, and help fund the Affordable Care Act (ACA). It was repealed in late 2019 before taking effect. ,” this Affordable Care Act provision levies a 40 percent marginal excise taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. on high-cost employer sponsored health insurance plans starting in 2018. The purpose of this tax is reduce the generosity of employer sponsored healthcare plans by taxing benefits over a certain value.
Current law, which excludes employer-sponsored healthcare plans from taxation, encourages employers to compensate employees in generous healthcare plans over wages. This has been linked to over-utilization of healthcare due to the fact that individuals are less likely to face the true cost of their care and leads to higher healthcare costs overall.
Health benefits should be included in the tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. . There is no legitimate tax policy rationale to exclude them. However, the “Cadillac Tax” is a poor substitute for just eliminating the employer-provided healthcare exclusion. Eliminating this hole in the income tax would have at least given Congress additional revenue to lower rates for everyone.Share