Health Care: Excise Tax May Be A Goner

The New York Times is reporting that the excise tax on employer-provided insurance may be dropped as part of any potential health care bill. The excise tax is extremely unpopular, and, purely from a political perspective, dropping it would be a very smart move.

Senator Kent Conrad, Democrat of North Dakota, supports the tax but said the outlook for it was “very cloudy.”

The House speaker, Nancy Pelosi of California, said, “The excise tax has no support, very little support, in our caucus.”

At meetings of the House Democratic Caucus, lawmakers from Massachusetts, including Representatives Edward J. Markey and Richard E. Neal, said they were struck by the vehemence of opposition to the tax in their districts.

Mr. Markey recalled that a constituent had poked him in the chest and said: “Eddie, I’ve voted for you my whole life. But if you think you will tax my benefits and give the money to Ben Nelson in Nebraska, you’re crazy.” Senator Nelson, Democrat of Nebraska, voted for the bill after it was rewritten to provide extra Medicaid money to his state.

The political problems with the excise tax are manifold. Besides the fact that the tax polls so poorly, its real danger is that it violates not one but two tax promises made by Obama during the 2008 campaign. Obama campaigned directly against John McCain's idea of taxing insurance benefits, and Obama promised not to raise taxes on anyone making less than $250,000 a year.

Talk of dropping the excise tax is the first sign I have seen that Democrats might use the reconciliation sidecar strategy to make health care reform more popular. If Democrats are really looking for a way to pay for dropping the excise tax, I have several suggestions. Clearly the best solution is the very popular public option or Medicare buy-in, both would save billions.