The Return of the Cadillac Tax?  

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Like the phoenix, a key piece of the Affordable Care Act has risen from the ashes, resurrected, believe it or not, by the Republican Study Committee — a caucus of conservative House Republicans. The RSC proposed capping the tax exclusion for health benefits that is currently available for employer-sponsored health insurance (ESI) and extending the same level of tax exclusion to all Americans regardless of where or how they obtain their coverage. The proposal echoes and improves upon the ACA “Cadillac tax” and deserves bipartisan consideration to combat inflation of health costs.

Current law excludes ESI premiums — both the employer and the worker shares — from an employee’s gross income that is normally subject to income and payroll taxation, even though employers can deduct these payments as business expenses. This is the tax code’s largest tax expenditure, reducing federal revenue by almost $3 trillion between 2019 and 2028. It encourages employers to substitute untaxed health-insurance expenditures for taxed wages and employees to obtain their health coverage at work. Economists have long regarded the exclusion as economically inefficient and regressive.

The ACA’s Cadillac Tax imposed a 40 percent tax on the amount of ESI spending that exceeded an upper limit — a $10,200 threshold for single coverage and a $27,500 threshold for family coverage, as of 2018 when the tax was originally slated to go into effect. Thresholds would increase annually with the Consumer Price Index. Since the CPI has increased more slowly than the growth in health-care spending, the impact of the tax was expected to grow over time, affecting about 16 percent of employment-based health plans in 2018, increasing to about half of such plans by 2025.

Read the full article on National Review.