Taxing Health Care

One idea that has been floated as part of comprehensive health care reform is to tax health care benefits as income. I recall Senator McCain's plan contained such a provision for example. Well, it looks like the Senate is considering going with it, too. Except for union workers.

The exception, which could make the proposal more politically palatable to Democrats from heavily unionized states such as Michigan, is adding controversy to an already contentious debate. It would shield the 12.4 percent of American workers who belong to unions from being taxed while exposing some other middle-income workers to the levy.

“I can’t think of any other aspect of the individual income tax that treats benefits of different people differently because of who they work for,” said Chris Edwards, director of tax policy studies at the Cato Institute, a Washington research group that often criticizes Democrats’ economic proposals. Edwards said the carve-out “smacks of political favoritism.”

Gerald Shea, an AFL-CIO official lobbying for health-care reform, said grandfathering benefits negotiated in a collective bargaining agreement is a “common thing when there is a big change in federal law.”

“Once a collective bargaining agreement is set, employer’s budgets are set, workers expectations are set. It doesn’t make sense to go back in the middle of the contract and change it,” he said.

Union groups and workers said Congress shouldn’t target contractually negotiated benefits.

Anna Burger, secretary-treasurer of the Service Employees International Union, said in an interview that workers have often traded salary increases for better benefits in agreements.

Taxes “shouldn’t be taken from the backs of workers who have bargained away wages and other things for their benefits over the years,” Burger said.

Other unions say they’re opposed to a tax on some employer- provided benefits, regardless of whether collective bargaining agreements are exempt.

“Either way, we are against a tax on health-care benefits in whatever form it takes,” said Jacob Hay, spokesman for the Laborers’ International Union of North America. The union represents 500,000 workers, largely in the construction industry.