Dear brothers and sisters, January 13, 2010;
Assalaamu Alaikum Wa Rahmathullahi Wa Bharakhathuhu.
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Labor Campaigns Against Tax on Health Plans
Published: January 12, 2010
WASHINGTON — Having failed to persuade
President Obama to scrap a proposed tax on high-cost
health insurance policies, labor leaders took their case Tuesday to Speaker
Nancy Pelosi, and they said they received a more favorable response.
...Under the Senate bill, the federal government would impose a 40 percent tax on the value of employer-sponsored health coverage exceeding $8,500 a year for an individual and $23,000 for a family. The bill would make certain allowances for plans covering retirees 55 and older and workers in high-risk occupations.
Ms. Pelosi noted that the president wanted the tax.
But Representative
Jerrold Nadler, Democrat of
New York, said: “The view of many progressives is that the tax is unacceptable. It would affect a lot of middle-income people.”
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Indeed the excise tax on the Cadillac Plans would increase the income-tax paid by the middle-income people by increasing their pay. The net result would be they would have more money on hand to spend on whatever they like. Let us say that Mr. Joe gets $12,000 an year under the Cadillac Plan. The tax on the excess of $3,500 over the allowed limit of $8,500 works out to $1,400. This excise tax is to be paid by the insurer. Thus the value of the Cadillac Plan of $12,000 is just $12,000 - $1,400 = $10,600 at the hands of the insurer. Accordingly the insurer might cut the benefits of the Cadillac Plan or might improve efficiency. The Democratic President, supportive Democratic Members of Congress, and the Democratic Senators expect the efficiency improvement.
What action of the employer would be appreciated more by the employee? Instead of giving $12,000 to the insurer who would actually give the benefit corresponding to $10,600, why not give the employee $3,500 and get a Cadillac Plan for $8,500? We should consider the situation after the Health Exchanges become operational. We expect the Democratic leaning Health Insurers would offer more benefits in Democratic controlled states under the Senate proposal. Thus those who are favored by the employers need to match the benefits to those given by the Democratic leaning insurers. It is even possible that at $8,500 the benefits during 2013 onwards might be better than the $12,000 benefits now. The reason: Now there is no competition. Thus the Labor Unions are better off bargaining for the excess amount in the Cadillac Plans to be given as increase in wages rather than opposing the excise tax.
Then the employee who was getting a Cadillac Plan of $12,000 now gets a Cadillac Plan of $8,500 but gets an increase of $3,500 in pay. If I were an employer, I would increase the pay by $3,500 to gain the goodwill of my employees. What is the benefit for me as an employer? If I insist on giving Cadillac Plans beyond the limits I need to employ more in my Personal Department as explained below. I would rather limit the value of the Cadillac Plans to the permitted limit and reduce my payroll commitment.
What is the effect on the employee? The employees salary increases by $3,500. Assume that being a middle-class the employee's top tax bracket is 25%. Thus the employee pays an additional tax of $875. But he/ she has an additional $3,500 - $875 = $2,625 to spend on whatever she/ he fancies. Remember an increased health insurance could be used by falling sick more often. Instead the excise tax on Cadillac plans gives incentive to every American to remain healthy as far as possible and improve the standard of life.
Inshah Allah in what follows, we hope to substantiate the above interpretation.
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[from pages 2 and 3 of the 13 page document]
The excise tax would be levied on a pro rata basis at the insurer and plan administrator (in the case of self-insured plans) level. The employer would be responsible for calculating the amount subject to the excise tax allocable to each insurer and plan administrator and for reporting these amounts to each insurer, plan administrator and the Internal Revenue Service ("IRS"). Each insurer and plan administrator is then responsible for calculating, reporting and paying the excise tax. Employers who undereport the amount subject to the excise tax to insurers, plan administrators and the IRS are genrally subject to a penalty.
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The excise tax is paid by the insurers and plan administrators. How come the tax paid by the employee increases? Quoting the Congress of the United States, Joint Committee on Taxation, report we have:
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[from page 3 of the 13 pages] You requested that we provide you with the total revenue effects of the premium excise tax as proposed in the bill. You also requested that we provide you with the revenues owing to excise tax receipts. The first three rows of the following table present the total revenue effects and the on and off budget amounts included in the total. The fourth row presents the net excise tax receipts from the proposal. We are also providing you with the percentage of health coverage benefits that are affected by the provision. As you can see in the table, other than the first year, the percentage owing to excise taxes is declining over the period, as consumers shift away from higher cost health coverage towards increased wage benefits. Also, you can see that the percentage of health benefits that are affected by the proposal is increasing over the period because the difference in inflation rates between CPI-U plus one percent and medical cost inflation compounds over time, therefore the number of taxpayers with health premiums exceeding the thresholds is expected to increase over time.
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How is the above report -- which shows the benefit to the workers due to increase in wages -- spun to discredit the excise tax? Allan Sloan, the Fortune Magazine's Senior Editor-at-large has the following:
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The idea of an excise tax on "Cadillac" health-care plans sounds like magic. It would raise almost $150 billion over 10 years to help finance health-care "reform"; it would be paid by employers, insurance companies and "the rich"; it would help "bend the cost curve" in the future; and for all I know, it might help regrow hair and cure warts.
But if you look at the actual workings of the plan, you come away far less impressed.
You discover that more than 80 percent of the money it raises would come from individuals paying higher income, Social Security and Medicare taxes -- not from soulless employers and insurers. You also discover that the biggest portion of the money comes from people who make less than $200,000. That's not exactly rich -- especially not for those of us in high-cost areas on the East and West coasts.
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Mr.Allan Sloan is wrong in assuming that the employer incurs any extra cost. The employer avoids the extra cost by limiting all insurance offered to the employees within the thresholds to avoid increasing the workers necessary to meet the additional paper work if there are premiums more than the threshold. The employees naturally would demand and get the reduced premiums included in their pay package as increased wages. Once the wages increase, their taxes naturally increase. However this fact that the employees gain in wages due to the excise tax on Cadillac Plans is twisted to claim that the middle-income families earning less than $200,000 are subjected to increased tax.
Nothing could be more perverse.
We hope the Members of Congress, in particular, the Democratic Members would appreciate the win-win situation created by the excise tax on Cadillac Plans and whole heartedly support the Senate proposal on excise tax.
We pray that the labor unions wake up and see the truth and support the excise tax.
Please forward to every American friend so that due to misunderstanding they do not reject an excellent win-win proposal made by the Senate.
With prayers to Allah Subhana Wa Taala,
Your brother,
Mohideen Ibramsha
Was Salaam