Why is organized labor blocking the easiest way to pay for health care reform?
Published on Slate’s The Big Money.
“The president is not helping us.” That complaint came last week from Senate finance committee Chairman Max Baucus, referring to the biggest roadblock for health reform—finding a way to cover its $1 trillion price tag.
Baucus was frustrated because Obama opposes one of the revenue options that are most politically acceptable in the Senate, rolling back the tax break on employer health benefits. If the tax break were eliminated altogether, the treasury would have an additional $250 billion each year to help expand coverage for the uninsured. Republicans like this idea because they’d prefer individuals be responsible for paying for their care instead of businesses, and many progressive economists support restructuring the tax break because they think it largely benefits wealthier workers at the expense of poorer ones. Yet Obama and many other senior Democrats are steadfastly opposing even a partial rollback of the tax break because it is treasured by the unions, whose members are 50 percent more likely to get benefits than workers in non-union shops. And the unions’ hard-line position, it pains me to say, contradicts what I learned about solidarity while a steward of the United Auto Workers.
At first glance, this tax break, known as the “employer exclusion,” is a great idea. Under the exclusion, a worker who earns an annual salary of $100,000 and receives $5,000 in benefits pays income tax only on the $100,000, not the full amount she receives from her employer. This effectively makes benefit dollars worth more than salary dollars, encouraging businesses to offer benefits. The problem, however, is that only 60 percent of workers have employer benefits, and they tend to be wealthier than workers without employer benefits. The employer exclusion also gives the greatest payoff to the wealthiest people: A worker in the 35 percent tax bracket with a $5,000 benefit package gets a $1,750 tax windfall, but if a low-income worker in the 15 percent bracket were lucky enough to get the same package, he would only save $750 on his taxes. The employer exclusion is a backdoor health insurance subsidy that gives the most help to the wealthiest workers with the best benefits while fully taxing the income of uninsured low-wage workers.
Unions fought hard for health benefits, and they fear employers will stop offering benefits if this tax advantage is taken away. And they’re right: Wholesale removal of the employer exclusion without other reforms could cause the complete collapse of the employer insurance system. But only a partial rollback of the exclusion is under consideration as a part of comprehensive health reform. It is hard to argue against taxing a portion of the benefits of higher earners in order to make the tax code fairer and expand coverage for the uninsured. Yes, some unionized workers with benefits would see their taxes go up, but I was taught that we organize to make life better for all workers, not just those in our bargaining units.
I signed a union card before I even drew a salary, and I later served as a steward for the local of the United Auto Workers that represents the 12,000 teaching assistants of the University of California. You may be as perplexed as I was at first that teaching assistants—who are the workers that run the classrooms of large universities while earning their doctoral and professional degrees—are affiliated with a union known for representing blue-collar workers. In 2002, the first time I attended a political meeting with activists from other UAW locals, I thought our agendas had little in common: They were concerned about jobs lost to globalization, while we were worried about class sizes and tuition hikes. As I drove back from this meeting with a UAW organizer, however, she pointed out that blue-collar union wages formed the tax base that helped build the University of California, so I had a vested interest in their economic strength. Teaching assistants returned the favor by giving the children of blue-collar workers an affordable, high-quality education that allowed them to continue climbing the economic ladder, so they had a vested interest in keeping our class sizes small.
This is what solidarity really means—we use our strength to make all workers stronger because that makes us all better off. That is why I was proudest of my local when we chose to go on strike rather than promise the university we would not come to the assistance of other university workers fighting for their rights. That is why I helped organize our members to support a living-wage law to protect service workers who did not have the union strength to win fair pay through collective bargaining.
And that is why better-off workers who don’t genuinely need the tax break to afford coverage should be willing to give up a portion of the employer exclusion to subsidize care for the uninsured. One proposal by MIT’s Jonathan Gruber would tax only families earning $125,000 or more per year, and it would tax only the value of their benefits above the average amount American workers receive. This alone could raise more than $340 billion in revenues by 2019.
Yes, there are other sources of revenue to pay for health reform. Savings from the current system can pay for half of the bill. Progressive options to raise the rest include a House proposal to raise taxes on those earning more than $280,000. But even if such a tax hike works its way through the openly skeptical Senate, it won’t change the fact that the employer exclusion partly diverts resources from the needy to the more comfortable.
Understandably, the unions are afraid Congress won’t deliver an adequate package, and they don’t want their members punished if Congress falls short. Richard Kirsch of the coalition Health Care for America Now, which includes most of the largest unions, told me that “there’s no way within this [employer-based] system to have those protections” against workers who currently have affordable coverage from becoming vulnerable to losing if the employer exclusion is reformed.
That sounds like planning for failure. There are storm clouds over the Senate finance committee, but the House of Representatives and another important Senate committee—the Health, Education, Labor, and Pensions Committee—have both put forward proposals with strong market controls that would make care available to all, including a public option to keep insurers in check and make sure providers operate efficiently. They also include a requirement that employers who can afford it will contribute to health costs. Perhaps most important, however, are their significant subsidies for low and moderate earners to buy insurance. A progressive restructuring of the employer exclusion could provide the revenues needed to break the logjam in the Senate finance committee and ensure its package does not scale back these invaluable subsidies.
Unions’ fears are not unreasonable, but they are compromising what’s best for all workers in order to protect unionized workers. And I’d like to believe that Walter Reuther, the legendary head of the United Auto Workers, would endorse this modest change in order to achieve universal coverage. When most unions had abandoned the fight for health reform in the 1960s because they had already won employer benefits for their members, Reuther launched his own effort to revive national health legislation. Announcing this campaign in 1969, he declared, “The call to greatness must be commensurate with the amount of change that is needed.”
The amount of change it will take to cover the 50 million uninsured and help Americans with insurance keep up with skyrocketing costs is huge—but more possible now than ever. Now is the time to be great.