By Avik Roy, Contributor
AUGUST 7, 2013 – Last month, we discussed the stunning turnabout from leaders of prominent labor unions, who stated that “unintended consequences” from Obamacare were “causing nightmare scenarios” that would “shatter not only our hard-earned health benefits, but destroy the foundation of the 40 hour work week that is the backbone of the American middle class.” But those were the complaints from private-sector unions. Now, we learn that public-sector unions, representing government employees, are hopping mad about a different aspect of our health law: its steep excise tax on costly health insurance plans, also known as the “Cadillac tax.”
Economists of all stripes have long argued that the original sin of the U.S. health-care system was a World War II decision to exempt health benefits from wartime wage controls. That exemption was later incorporated into the tax code, whereby health benefits did not count as taxable income. A dollar in normal wages might turn into 50 cents after you take out federal income taxes, local income taxes, and payroll taxes. But a dollar in health benefits is still a dollar, giving workers a huge incentive to get health insurance from their employers, but making them insensitive to the cost of that coverage, since they don’t shop for it themselves.