CQ Politics, July 7, 2009, Tuesday

CQ Politics

July 7, 2009, Tuesday

CQ Politics

Unions Waver on Taxing Health Benefits

By Richard Rubin, CQ Staff

Unionized workers have fought to preserve their relatively expensive health plans through contract talks, sometimes at the expense of wage increases.

Now, with some unions airing televised ads targeting senators who support the idea of counting some health benefits as taxable income, pressure is increasing on Capitol Hill to look elsewhere to offset the cost of a health care overhaul.

Michael Wilson, international vice president of the 1.3-million-member United Food and Commercial Workers, said union leaders told workers that 2008 GOP presidential candidate John McCain , R-Ariz., would tax their health benefits and that Democrat Barack Obama would not. Those workers would feel stung if the plan Obama ends up signing includes such a tax.

“That’s a message that resonated with our members, no matter what their ideology was,” Wilson said.

No union has formally moved off that position, but some have been louder than others in opposing taxation of any benefits. The International Brotherhood of Teamsters and the Laborers International Union of North America have been particularly active in campaigning against consideration of a cap.

The Laborers union has broadcast ads in states represented by several Finance Committee members.

Gary Chaison, professor of industrial relations at Clark University in Worcester, Mass., said industrial unions such as the United Steelworkers and United Auto Workers tend to include more retirees in their health plans, making their pools more expensive to insure. Their members may also be concentrated in expensive regions of the country, including parts of the Northeast. Service unions tend to be more scattered and represent workers in a broader age range.

The possibility of taxing generous health benefits demonstrates the range of opinion in the labor movement, and may expose the different perspectives of industrial-sector and service economy workers.

As union leaders and liberal Democrats campaign for a requirement that employers provide health insurance, a publicly run insurance plan and other priorities, the continued tax-free status of health benefits could become negotiable as unions weigh what they could get in exchange for accepting taxation of benefits.

“It’s about where we end up with a full package,” said JoAnn Volk, legislative representative for the AFL-CIO. “This is just the beginning of the process. We don’t see any interest in this in the House. This is not where we make compromises.”

The issue is particularly tricky for unions representing health care workers, who want to make sure health care legislation expands employment opportunities in their field, said Chaison. “Right now, they’re trying to work out their policy on this, and it’s a difficult one, because they have to look at both the payroll part and the employment part.”

House and Senate at Odds

Some version of a cap on the longtime exclusion of health benefits from taxable income is likely to emerge from a the Senate Finance Committee markup this month.

Unionized workers have fought to preserve their relatively expensive health plans through contract talks, sometimes at the expense of wage increases.

Now, with some unions airing televised ads targeting senators who support the idea of counting some health benefits as taxable income, pressure is increasing on Capitol Hill to look elsewhere to offset the cost of a health care overhaul.

Michael Wilson, international vice president of the 1.3-million-member United Food and Commercial Workers, said union leaders told workers that 2008 GOP presidential candidate John McCain , R-Ariz., would tax their health benefits and that Democrat Barack Obama would not. Those workers would feel stung if the plan Obama ends up signing includes such a tax.

“That’s a message that resonated with our members, no matter what their ideology was,” Wilson said.

No union has formally moved off that position, but some have been louder than others in opposing taxation of any benefits. The International Brotherhood of Teamsters and the Laborers International Union of North America have been particularly active in campaigning against consideration of a cap.

The Laborers union has broadcast ads in states represented by several Finance Committee members.

Gary Chaison, professor of industrial relations at Clark University in Worcester, Mass., said industrial unions such as the United Steelworkers and United Auto Workers tend to include more retirees in their health plans, making their pools more expensive to insure. Their members may also be concentrated in expensive regions of the country, including parts of the Northeast. Service unions tend to be more scattered and represent workers in a broader age range.

The possibility of taxing generous health benefits demonstrates the range of opinion in the labor movement, and may expose the different perspectives of industrial-sector and service economy workers.

As union leaders and liberal Democrats campaign for a requirement that employers provide health insurance, a publicly run insurance plan and other priorities, the continued tax-free status of health benefits could become negotiable as unions weigh what they could get in exchange for accepting taxation of benefits.

“It’s about where we end up with a full package,” said JoAnn Volk, legislative representative for the AFL-CIO. “This is just the beginning of the process. We don’t see any interest in this in the House. This is not where we make compromises.”

The issue is particularly tricky for unions representing health care workers, who want to make sure health care legislation expands employment opportunities in their field, said Chaison. “Right now, they’re trying to work out their policy on this, and it’s a difficult one, because they have to look at both the payroll part and the employment part.”

House and Senate at Odds
Some version of a cap on the longtime exclusion of health benefits from taxable income is likely to emerge from a the Senate Finance Committee markup this month.

Chairman Max Baucus , D-Mont., who has been courting Republicans, says he wants to limit his bill’s revenue increases to the health care sector. He seems to have settled on capping the exclusion as a way to raise hundreds of billions of dollars over 10 years while encouraging employers and insurers to contain costs. Committee members have been discussing a cap set at 10 percent above the cost of federal employees’ health benefits. An exception for benefits provided under existing union contracts is being considered as a way to limit the impact of imposing a cap.

Spokeswoman Erin Shields said in a statement that Baucus has asked everyone, including unions, to “suspend judgment and wait to see the benefits of the entire package.”

But House tax writers, many of whom have stronger union ties than their Senate counterparts, have shown little enthusiasm for making some health benefits taxable. Instead, they are focused on other options for raising money, including a surtax on the adjusted gross income of top earners.

Democrats taking their cues from the White House may not be sure what to think. Obama campaigned against a proposal that McCain espoused, to tax all employer-provided benefits and provide a tax credit to purchase insurance.

Although it stands by its own proposal for financing health care, the administration has steadily tiptoed away from that strong opposition to taxing health benefits. Now, administration officials say they are waiting for legislation to emerge before drawing a red line.

During a town hall meeting on health care last week in Annandale, Va., Obama drew a distinction between the McCain proposal for eliminating the exclusion and the more recent proposals for a cap, suggesting he is open to the latter. But he did not commit, saying only, “We’re all going to have to weigh in on it.”

Most versions of a cap would, like a tobacco tax increase he signed into law earlier this year (PL 111-3), break Obama’s pledge to prevent tax increases for any married couple making less than $250,000.

In the end, said Richard Hurd, a professor of industrial and labor relations at Cornell University, a few labor leaders may find reasons to make a deal on or endorse one version of the benefits tax. “Undoubtedly, some unions will be sensitive to the political pressures on the administration and might see that a compromise might make sense,” he said.