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Mrs. Clinton, Why Hurt American Workers?

Ruth Marcus on

WASHINGTON -- The mischievous columnist in me wants to ask: Why is Hillary Clinton trying to lose jobs and lower wages?

My more responsible columnist side quickly adds: Of course that's not Clinton's goal. Yet it is the predictable -- indeed, it's the predicted -- outcome of two important recent policy pronouncements. First, her call to repeal the so-called Cadillac tax on high-cost health plans. Second, her newfound opposition to the Trans-Pacific Partnership trade agreement.

This is not my economic analysis. It's the assessment of the Obama administration.

Let's start with the Cadillac tax on health care plans that cost more than $10,200 for a single person and $27,500 for families. Beginning in 2018, employers who offer such insurance will have to pay a 40 percent tax on the excess amount.

The theory is that the tax will help reduce health care costs by discouraging employers from providing overly generous coverage. A second benefit involves the bottom line; the tax will reduce deficits by an estimated $91 billion over the next decade and more than $500 billion in the 10 years after that.

But that's not because the tax alone will generate so much revenue. It's mostly because of the third, and, for purposes of this column, most relevant benefit: The Cadillac tax will raise wages.

 

How's that? As my Washington Post colleague Catherine Rampell has explained, health benefits provided by your employer, unlike your wages, aren't subject to taxation. That has the perverse effect of encouraging employers to pay you more in the form of tax-free health insurance, less in the form of your actual, taxed salary. The Cadillac tax would reduce that incentive, and, economic theory predicts, raise wages over time as compensation packages shift.

Raise wages significantly, in fact. Jason Furman, chairman of the Council of Economic Advisers, made this point in a speech at the Brookings Institution last week, estimating that the tax "will increase take-home pay by $45 billion per year by 2025."

That amount, Furman noted, is twice how much the Congressional Budget Office estimates low- and middle-income workers would benefit from increasing the minimum wage to $10.10 per hour.

Translating economic theory into cold hard cash can take time, Furman acknowledged. In the meantime, he observed, lowering health insurance bills "would benefit workers through another channel: by reducing employers' compensation costs and thereby boosting hiring."

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