Tax shock is just start for Obamacare

From Patrick McIlheran at the Milwaukee Journal Sentinel:

Asked a question last week - whether it was wise to raise taxes in a recession - the president found himself stumble-running down a mountainside of words.

Barack Obama went on for 17 minutes and 14 seconds, twice apologizing for rambling even as he plunged helplessly on. Along the way, he revealed that his top idea for cutting costs is that doctors e-mail each other, and he tried telling an incoherent parable about roofs.

This man was once a professor in the art of arguing the law. He nonetheless sent an audience into catatonia while failing to answer the question. One suspects he was avoiding the straightforward answer provided in 2,350 fewer words by the human resources director of Caterpillar Corp.

"The timing of this tax increase could not be worse," wrote the executive to Caterpillar employees the week before. And: "The new law will increase Caterpillar's cost of providing health care benefits," which will affect what employees and retirees get.

This surprised the ruling class, unsurprisingly. Obamacare is a stew into which Congress threw ingredients based on one criterion: Would it push the bill one vote closer to passing? The consequences are emerging. This tax surprise reveals what awaits us:

Higher costs, fewer benefits. Caterpillar was one of about a dozen big companies so far to announce they were accounting for the cost of an odd tax provision in Obamacare. The new law repeals a tax break companies got for continuing to provide drug benefits to retirees. About 3,500 companies get the break in exchange for not dumping retirees onto Medicare Part D.

Paying the tax break costs about half of what it would cost Medicare to pay the benefits, but repealing the break helped tart up fiscal picture for Obamacare. So the break is gone, costing industry about $14 billion. Perversely, the increase hits hardest at the paternalistic kind of company that abounds in Wisconsin and that Democrats profess to admire.

Dumped. The president kept telling us we could keep our coverage if we liked it. Observers replied that employers will have every incentive to dump us onto whatever kind of subsidized provision eventually emerges.

This is exactly what observers say will happen with retiree drug benefits: The tax change will mean about 1.5 million to 2 million people will be dumped onto Medicare Part D, usually with inferior benefits.

It's not just taxes, either. The tax break staved off the reality that when public options duplicate what employers provide, employers have every reason to stop providing.

Nice benefits, while costly, help employers compete in hiring talent. But if taxpayers cover the benefit for everyone else, employers get no boost from generosity.

Even if employers want to be generous anyhow, the state's generosity makes theirs meaningless. It inculcates a sense of, "We already gave - through the IRS."

Politics in everything. Once companies started telling shareholders how much the tax break's repeal would cost, Congress grew irate. "The new law is designed to expand coverage and bring down costs," wrote one potentate, Rep. Henry Waxman (D-Calif.), so he ordered CEOs to show up with documentation as to why reality isn't obeying with Congress' intentions.

The idea that the companies are acting from spite is laughable. Among them are heavily regulated telecoms and firms depending on federal contracts. Their every incentive is to truckle to Washington. They announced costs only because federal law says that to do otherwise would amount to stock fraud.

Yet this accounting truth is politically charged. That's what redesigning health care according to the will of Congress can do. Liberals complained that health care depended on how much money you had. Now it will depend on your political capital.

The 2,700-page bill will have other consequences that Congress neither foresees nor wants. Even had the bill been the epitome of caution, any nationalization of a sixth of the economy is bound to involve chaos theory. It was, instead, the product of logrolling and a president's incoherent wishes. Much more trouble lies waiting in it.