President Obama's 4000th Flip-Flop

Democrats and the Health Tax Taboo

The president attacked McCain for proposing a benefits tax.

The cost estimates for the Democrats' health-care reform have by now hit $1.5 trillion over a decade. Goodness knows the architects of this beast -- which they hope will include a new "public option" health entitlement -- have been creative in dreaming up ways to pay for it. In recent months, the administration and Congress have floated ideas to limit tax deductions, penalize soda-pop drinking, tax alcohol, tax salty foods, further raise the price of cigarettes, tax specific companies, charge for carbon, cut Medicare payments, or even implement a national sales tax.

In each case, Democrats have confronted the bitter reality that the proposed tax is too puny (Dr. Pepper tariffs), too doomed (cap-and-trade revenue), or too politically ugly (a sales tax). Contrast this with the tantalizing reality that requiring Americans to pay taxes on some part of the company health-care benefits they now receive for free could easily raise a half-trillion dollars over a decade. In a choice between a dozen niggling tax fights that could yield uncertain revenue, or a bigger fight over benefits taxes that could yield oodles, Mr. Baucus will take the oodles.

But for two small problems. The first is that about 99% of the Democratic Party is on record trashing the idea of taxing health benefits. Trasher-in-chief is none other than President Barack Obama, who mercilessly berated Sen. John McCain for proposing such a change during the 2008 campaign. "Apparently, Senator McCain doesn't think it's enough that your health premiums have doubled. He thinks you should have to pay taxes on them, too," ran one Obama ad. Republicans are, as you read, turning these words into crisp attack ads.

The Democrats' other problem is that the usual populist line won't fly. The party would like to be able to protect itself by saying that only those who now receive the most generous benefits will face taxes. Then again, the Americans who now have the Cadillacs (or, in these post-bailout-days, the Swedish sports car Koenigsegg CCXs) of health-care coverage are union workers. Union workers "would be stuck footing more of the bill than others," says Paul Fronstin, a senior research associate with the Employee Benefit Research Institute.