After promising to cut taxes for 95% of Americans, President Obama will face a critical decision when he is presented with the final healthcare reform legislation. Included in the Senate bill is a provision that places a 40% tax on the so-called “Cadillac plans”. These are plans that cost more than $8,500 per individual or $23,000 per family.
Douglas Holtz-Eakin, former director of the Congressional Budget Office, has stated that 95% of people with these Cadillac plans actually make less than $250,000 a year, and by extension a tax increase on these plans will mostly hit the middle class.
As argued in a Fox News article, the potential outcome of such an action would be as follows:
1) A tax increase will cause employers to potentially cut benefits as costs are passed on.
2) These higher costs will cause these Cadillac plans, which are mostly held by union and state government employees, to disappear.
3) The Senate legislation assumes that lost benefits, which are not taxable, will be replaced by an increase in wages, which are taxable, resulting in a middle class tax increase.
If the President is going to keep his promise to cut taxes for 95% of Americans, he must closely examine the final healthcare bill when it comes to his desk.