Comments on: Cadillac Tax, Redux

By: Austin Frakt

Austin Frakt — Tue, 09 Feb 2010 17:59:22 +0000

@Bart – We agree. The problem is that the improved version we favor seems not to be politically viable. So, we’ll likely get a crappy version, with a few tweaks that make it marginally less crappy. I think that’s better than nothing, particularly when the revenue has to come from somewhere and other avenues are blocked. I hope that the reform gets re-reformed in the future, maybe even before much of it bites, to work out some of these kinks. But if the first reform doesn’t pass we won’t see anything like it for a long time. And that’s how I end up backing something that isn’t as perfect as I’d like.

By: Bart

Bart — Tue, 09 Feb 2010 17:28:18 +0000

Sorry, that should have been “age (comma) risk (comma) size and composition of employer pool…”

Also, my rationale for the 20% excise tax was that if the tax incentive is reduced, is should be possible to reduce incentives to over-consume without needing a Congressional committee to make decisions about what level of spending is appropriate for each specific circumstance.

By: Bart

Bart — Tue, 09 Feb 2010 17:21:43 +0000

I agree, if I read this correctly. It idea of ratcheting back the tax exclusion is sound, but the specific proposal is not.

My problem is not with using an excise tax as a surrogate for a direct attack on the tax exclusion. I just think a cap on benefits is messy, requiring all sorts of adjustments for things like age, risk size and composition of employer pool, and on and on. This makes the alternative proposal, to base the cap on income level, look rather attractive.

So something like a 20% excise tax on all benefits that begins to phase in at some high income level sounds more attractive to me. I don’t really care at what specific level, so long as it’s above the income cap for Social Security payroll tax. This way combined marginal tax rates can be held to a reasonable value.