Ending the employer tax exclusion

Don Taylor on how to cut the deficit:

What we should do: (1) pick a social security option or options; (2) cap the tax exclusion of employer paid insurance and move toward ending it; (3) implement PPACA and beef up the ability of Medicare to be a more active purchaser of health care via the Independent Payment Advisory Board.

I agree, though these are not very specific, particularly (1) and the second part of (3). I don’t have any particular favorite way to shore up Social Security either (I haven’t given it deep thought–been focused on health care.) As for the IPAB, the best idea I’ve seen lately is what Leonhardt and Orszag described.

Taylor’s idea (2) is specific except for the timing and the level of initial cap. However, the excise (Cadillac) tax does exactly this, only it won’t start until 2018 and will take a very long time to eat  through the bulk of premiums. If Taylor is suggesting we initiate it sooner and lower the threshold faster, I’m for that. Having just witnessed a mighty fight to get the delayed and slow version on the books, I doubt anybody outside the Deficit Commission will be proposing such a thing.

To be honest, I’d be delighted if we just manage to keep the version of the high-premium excise tax we have from being further eroded or delayed. In fact, if we just make the PPACA work as planed, deficits will shrink to zero (CBO’s baseline scenario). That’s a good start! We’d still have interest on the debt to contend with though, and the increasing tax revenue needed to keep deficits at zero seems politically unsustainable to me.

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