TaxVox

Note to critics of the public plan option for health insurance: This debate is over. You lost. In 2007, more than 45 percent of all medical costs in the U.S. were paid by government, vastly more than the one-third funded by private insurance. Many Americans already have access to public coverage. There is Medicare for those over 65, Medicaid for the poor, SCHIP for kids, coverage for the active military, and for many veterans. Together, the share of medical spending paid by government has grown from one-third in 1970 to nearly half today, according to the Current Population Survey. If your definition of “public plan” includes insurance available through highly-regulated private carriers to federal, state, and local employees, the numbers are even bigger. And, of course, there is the quarter-trillion dollar government tax subsidy for health insurance.

Until now, unions have been among the strongest critics of paying for health reform by limiting the tax exclusion for employer sponsored insurance. But on Monday, a well-connected labor lobbyist told me a deal could be done. “It all depends,” he said, “on what the cap looks like.” Remarkably, in just a few weeks, lawmakers seem to have moved beyond the argument over whether the exclusion should be capped. Now, they are debating how. It is not easy. There are caps based on employee income, the value of the insurance, or both. There are caps tied to the actuarial value of coverage, or linked to geography. Then, there is the issue about how to index a cap.

San Francisco Mayor Gavin Newsom recently proposed a new 33-cent tax on a pack of cigarettes to help pay for the city’s annual $10.7 million litter-collection program, which includes removing cigarette butts from gutters, drainpipes, and sewers. Though this litter tax may be unique, San Francisco is not alone in targeting sin taxes this year. At least 25 states want to raise tobacco taxes, and 12 would either create or increase taxes on alcohol. While smoking, drinking, and littering are relatively easy political targets when more tax revenue is needed, raising sin taxes to fill large and growing budget deficits during a recession might be more regressive and less countercyclical than other options. What’s more, in the case of city taxes, they may not raise much additional revenue.

President Obama appears to be ever-so-slowly backing away from his hard-edged campaign opposition to capping the $246 billion employer-sponsored insurance tax exclusion as a way to help pay for health reform. It’s the typical Washington dance. First, on June 2, the President met privately with two dozen Senate Democrats to talk about health reform. Senate Finance Committee Chairman Max Baucus (D-MT), who favors curbing the exclusion, told reporters after the meeting that the President was now willing to consider some limits on the tax subsidy. Another Democrat, Chris Dodd of Connecticut, heard it differently, telling the Wall Street Journal that Obama was not budging. Finally, a White House spokesman ended the day with this: "The president made it clear during the campaign that he has serious concerns about taxing health-care benefits.”