The $149 billion number – the amount of revenue the CBO estimates the excise tax will bring in – has becoming gospel in Washington. But there’s a very good chance the number is overstated, possibly by tens of billions of dollars, and the mistake seems to have been completely overlooked. Here’s how it happened:
In its November 18 analysis of the Senate bill, the CBO footnotes the $149 billion figure with this comment: “If employers increase or decrease the amount of compensation they provide in the form of health insurance (relative to current-law projections), CBO and JCT assume that offsetting changes will occur in wages and other forms of compensation—which are generally taxable—to hold total compensation roughly the same.” (emphasis mine)
In other words, the CBO assumes that workers will receive approximately as much in wages (which are taxable) as is taken away from their benefits. That’s an enormous assumption, based in large part on some long-term studies on the relationship between wages and benefits in past decades. Here’s the problem: We now know that only 18% of employers surveyed by the Mercer group indicated that they would actually pass some of their savings on in the form of higher wages. If that figure is accurate – and there’s no reason to believe it isn’t – whatever figure the CBO used could be overstated by five to one. What’s more, we can’t assume that even those 18% will pass all of the benefit savings along in the form of wages.
Nobody has asked the CBO to reassess its estimate in light of the Mercer study. We don’t know what portion of the $149 billion was attributed to the rise in taxable wages, and what portion was attributed to collection of the excise tax itself. (We will research that number, however, and let you know if and when we find it.) But it’s fair to assume that the real savings attributed to the tax is significantly less than $149 billion.
The $150 billion attributed to the Sanders-Franken-Brown Amendment stands unchallenged as of this writing.
