Policy Experts Urge Senate Not to Repeal ‘Cadillac Tax’

July 29, 2019

The Honorable Mitch McConnell
Majority Leader
United States Senate

The Honorable Charles Schumer
Minority Leader
United States Senate

Dear Senator McConnell and Senator Schumer,

The House of Representatives recently voted to repeal the “Cadillac tax,” an excise tax on high-cost employer-sponsored health coverage (above a tax-free amount). For the reasons set forth below, we urge the Senate not to repeal this tax.

For decades, economists and health policy experts of all political persuasions have agreed that the unlimited exclusion of employer-financed health insurance from income and payroll taxes is inflationary, inefficient, and regressive. The Affordable Care Act established the Cadillac tax to address these issues.

The Cadillac tax will help curtail the growth of private health insurance premiums by encouraging employers to limit the costs of plans to the tax-free amount. The excise tax will discourage the provision of insurance that covers such a large proportion of health care spending that consumers have little incentive to insist on cost-effective care and providers have little incentive to provide it. As employers redesign health insurance plans to hold costs within the tax-free amount, cash wages or other fringe benefits will increase. Furthermore, repealing the Cadillac tax would add directly to the federal budget deficit, an estimated $197 billion over the next decade according to the Joint Committee on Taxation.

We, the undersigned health economists and policy analysts, hold widely varying views on other provisions of the Affordable Care Act, and we recognize that measures other than the Cadillac tax could have been used to restrict the open-ended health insurance tax break.

But we unite in urging Congress to take no action to weaken, delay, or reduce the Cadillac tax until and unless it enacts an alternative tax change that would more effectively curtail cost growth.

Sincerely,

Henry Aaron
Brookings Institution

Loren Adler
Brookings Institution

David Yves Albouy
University of Illinois

Joseph Antos
American Enterprise Institute

Aviva Aron-Dine
Center on Budget and Policy Priorities

Alan Auerbach
University of California

Martin Baily
Brookings Institution

Laurence Baker
Stanford University

Ernst Berndt
Massachusetts Institute of Technology

Robert Bixby
Concord Coalition

Barry Bosworth
Brookings Institution

Alex Brill
American Enterprise Institute

Gary Burtless
Brookings Institution

Stuart Butler
Brookings Institution

Kate Bundorf
Stanford University

James C. Capretta
American Enterprise Institute

Amitabh Chandra
Harvard University

Michael Chernew
Harvard University

Barry Clendenin
George Mason University

David Cutler
Harvard University

Patricia Danzon
University of Pennsylvania

Angus Deaton
Princeton University

Peter Diamond
Massachusetts Institute of Technology

Avi Dor
George Washington University

Mark Duggan
Stanford University

Douglas Elmendorf
Harvard University

Ezekiel Emanuel
University of Pennsylvania

Yevgeniy Feyman
Boston University

Matthew Fiedler
Brookings Institution

Robert Fellner
Nevada Policy Research Institute

Austin Frakt
Boston University

Jason Furman
Harvard University

William Gale
Brookings Institution

Martin Gaynor
Carnegie Mellon University

Paul Ginsburg
University of Southern California

Sherry Glied
New York University

Marc Goldwein
Committee for a Responsible Federal Budget

Joshua Gotbaum
Brookings Institution

Gordon Gray
American Action Forum

Jonathan Gruber
Massachusetts Institute of Technology

Holly Harvey
Committee for a Responsible Federal Budget

Ron Haskins
Brookings Institution

Tara O'Neill Hayes
American Action Forum

Christopher Holt
American Action Forum

Doug Holtz-Eakin
American Action Forum

Jill Horwitz
University of California

Robert Huckman
Harvard University

Paul Hughes-Cromwick
Altarum Institute

Robert P. Inman
University of Pennsylvania

Benedic Ippolito
American Enterprise Institute

Damon Jones
University of Chicago

Helen Levy
University of Michigan

Frank Levy
Massachusetts Institute of Technology

Steven Lieberman
Brookings Institution

Robert Litan

Erzo Luttmer
Dartmouth College

Maya MacGuineas
Committee for a Responsible Federal Budget

Eric Maskin
Harvard University

Aparna Mathur
American Enterprise Institute

Thomas McGuire
Harvard University

Ellen Meara
Dartmouth College

David Meltzer
University of Chicago

Bruce Meyer
University of Chicago

John McDonough
Harvard University

Cecilia Munoz

Len Nichols
George Mason University

Maurice Obstfeld
University of California

Michael O'Hanlon
Brookings Institution

Harold Pollack
University of Chicago

Daniel Polsky
John Hopkins University

Robert Pozen
Massachusetts Institute of Technology

Robert Reischauer
Urban Institute

Ben Ritz
Progressive Policy Institute

Christina Romer
University of California

Avik Roy
Foundation for Research on Equal Opportunity

Christopher Ruhm
University of Virginia

Andrew Samwick
Dartmouth University

Isabel Sawhill
Brookings Institution

Douglas Shackelford
University of North Carolina

Sita Slavov
George Mason University

Neeraj Sood
University of Southern California

Eugene Steuerle
Urban Institute

Betsey Stevenson
University of Michigan

Michael Strain
American Enterprise Institute

Katherine Swartz
Harvard University

John Taylor
Stanford University

Richard  Thaler
University of Chicago

Grace-Marie Turner
Galen Institute

Ani Turner
Altarum

Laura Tyson
University of California

Stan Veuger
American Enterprise Institute

Alan Viard
American Enterprise Institute

Paul Van de Water
Center on Budget and Policy Priorities

Gail Wilensky
Project HOPE

Roberton Williams
University of Maryland

Kyle Wingfield
Georgia Public Policy Foundation

Justin Wolfers
University of Michigan

Richard Zeckhauser
Harvard University

*Organization affiliations are listed for identification purposes only.