As the deadline for the so-called supercommittee nears and speculation about what it will do to make at least $1.2 trillion in cuts to the deficit reaches a fever pitch, 160 U.S. representatives—including 14 Republicans—signed a letter urging the panel not to consider slashing the tax exemption for employer-provided healthcare benefits. The letter, authored by Democratic Connecticut Rep. Joe Courtney and Republican Oklahoma Rep. Tom Cole, claims that proposals to change the deduction would "not only reduce health coverage for millions of Americans, but would also increase long-term federal spending obligations."
The supercommittee, tasked by this summer's debt ceiling compromise with finding between $1.2 trillion and $1.5 trillion in debt reduction over a 10-year period, has remained tight-lipped about its proposals as the November 23 deadline to submit a plan approaches. The silence has led to hyperventilating among interest groups worried that they'll be hit with a damaging proposal without much time to respond.
The healthcare deduction exempts employees from having to pay taxes on employer-provided healthcare benefits. The deduction, which means the federal government collects about $250 billion less each year than it otherwise would, benefits millions of workers. But critics claim that it's a regressive benefit—the more money you make, the better the perk—and that it encourages employers to offer extravagant healthcare plans, contributing to the nation's skyrocketing health costs. The presidential fiscal commission report, authored by former White House chief of staff Erskine Bowles and former Wyoming Sen. Alan Simpson, recommended capping the benefit, while another debt plan authored by former New Mexico Sen. Pete Domenici and former White House budget director Alice Rivlin recommended doing away with the deduction entirely. All four testified before the supercommittee earlier this week.
Cole dismissed such arguments as ivory tower thinking, disconnected from the real world. "It's popular in academic circles as a quick fix for the deficit," Cole said, but the "political reality" iss that it would never pass Congress. "This is a middle-class tax increase," Courtney said.
Past efforts to cap or change the employer exemption have ended with a whimper. President Obama pushed for a tax on pricey, "Cadillac" healthcare plans during the debate over the Affordable Care Act, and while the tax did make it into the final law, it was significantly watered down. The employer exemption benefits organized labor, one of the Democrats' key constituencies, and the idea of raising taxes on anything runs against the Republican Party's current no-tax mantra.
But the issue shows just how difficult the supercommittee's task is. Simpson, Bowles, and other anti-deficit advocates have urged the panel to consider eliminating the $1.1 trillion of tax incentives in the current code. But many of those dollars go toward incentives like the employer exemption, cherished tax deductions that benefit millions of Americans and have strong, politically powerful constituencies. Other examples include the mortgage interest deduction, which experts also claim is wasteful and had a role in the housing bubble, as well as deductions for charitable contributions. Eliminating, reducing, or changing those deductions is a political headache the supercommittee may be eager to avoid.
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