Economists Lawrence H. Summers, Treasury secretary under President Clinton and top economics adviser under President Obama, and N. Gregory Mankiw, CEA chair under President George W. Bush, team up this morning in an op-ed supporting Obamacare’s Cadillac tax.
They are right to do so, as the Cadillac tax actually cuts government spending (properly understood).
To some, the Cadillac tax is unpopular simply because they see it as a tax increase. We prefer to think of it as limiting a government subsidy that stems from the tax exclusion of employer-provided health insurance. The government recognizes this subsidy in its annual budget as a tax expenditure. Though the Cadillac tax reduces the deficit modestly, its main objective is not to increase government revenue but to move the nation toward a more efficient system of health insurance.
Also, the tax will likely increase wages, which we would all like to see happen for ourselves and for our neighbors.
Might companies use the Cadillac tax as an excuse to reduce health coverage and, instead of increasing wages, simply pocket the savings? Some may try, but the success of this strategy would be fleeting. In the long run, the compensation of labor, like most prices in the economy, is governed by supply and demand. Any employer that tries to pay less than the market requires will struggle to recruit and retain workers.
The resulting wage increases from this policy are sizable. Jason Furman, chairman of the Council of Economic Advisers, estimates that take-home pay will increase by $45 billion a year by 2025. By comparison, according to a 2014 report by the Congressional Budget Office, increasing the minimum wage to $10.10 an hour, from $7.25, would raise wages for low- and middle-income families by only half as much by the time the incremental increase would have been completed.
These are two of many helpful arguments in their op-ed, which you can read here in its entirety.