Tuesday, November 18, 2014

Playing the "STUPID" Card...

The tax on high-end employer provided health benefits (a.k.a. the Cadillac tax) is the same tax that is at the heart of the comments made by Jonathan Gruber that some are using to suggest that American's were lied to.  Yet, the discussion about changing the tax code to reflect the bias treatment of employment compensation has been debated many times before (see article link below).

There is often a big difference between who legally pays a tax (who the tax code imposes the tax on) and who "economically" pays the tax.  Hence, Gruber's newly surfaced comments at conferences and class lectures about how the tax would be shifted in part to everyone in the market is basic microeconomics albeit not that well understood.  I agree his choice of words was poor, but if the point about the economic incidence of the tax was made explicit, as Gruber stated, the bill wouldn't have passed and we would still have millions of uninsured people.

Based on the "current" conservative line of logic, all FICA taxes are a "lie" because taxes legally  levied on your employer for their Social Security and Medicare contribution of your behalf are actually born partially out of your wages depending on the wage sensitivity in the labor market.  The tax on cigarette manufacturers is a lie because the tax is economically born by smokers who are very insensitive to price (little decrease in consumption) when it goes up because of the tax.

The conservative media is turning this basic economic reality into a farce.  They appear to be very sensitive to being called stupid yet by making the whole argument about a "lie" appear to be, well, actually stupid.

Check out this article from the Houston Chronicle from 1/28/2007.  It is the very same tax, the "Cadillac Tax", being proposed by the Bush Administration in 2007.  This is not a new concept for conservative policy makers.  They know all about this tax and know this economic concept.  What they are really doing is playing the "stupid" card, literally and figuratively, on their conservative base.  So let me ask, who's really stupid here?


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