Taxing Health Care Will Destroy Democrats

Vincent Panvini Sr. is one of those Washington insiders whose names seldom appear in the newspapers but can be found in hundreds of Rolodexes on Capitol Hill. He is the guy in charge of political contributions for the Sheet Metal Workers union. In the 2008 election, Panvini handed out almost $2.4 million, 97 percent of which went to Democrats. Panvini's choices will change, he predicts, if the Democratic Party decides to reform healthcare on the backs of union members--taxing the health benefits that working people won in collective bargaining by forgoing wage increases.

"This is a political train wreck waiting to happen," Panvini warns. In recent weeks he has been bluntly informing party leaders that they are flirting with a disaster comparable to the great wipeout Democrats suffered in 1994, when Gingrich Republicans won control of the House.

Policy thinkers and rightward-leaning "Blue Dog" Democrats look upon the proposal as a tempting opportunity to raise lots of revenue for healthcare reform, which the nonpartisan Congressional Budget Office recently estimated could cost as much as $1.6 trillion over ten years. Limiting existing tax exemptions could produce more than $418 billion in the same span of time, according to the Joint Taxation Committee, a significant down payment.

Problem is, a big switch on taxing benefits would double-cross a major constituency and break some important promises. During the presidential campaign, Obama attacked John McCain for proposing the very same idea. Obama further promised he would not increase taxes on the middle class. "If you tax health benefits, you are taxing the middle class," Panvini explains. The issue was critical, he adds, in persuading many white working-class voters to put aside racial fears and return to the Democratic Party.

If the president embraces the plan, the consequences, Panvini thinks, could be explosive. "If any of these Democratic senators vote for this, they will be voted out in 2010, and this will definitely be used against Obama in 2012. People are already hurting, unemployed--and then you are going to tax them more? That's crazy."

The conventional view of the 1994 election is that voters were reacting to Bill Clinton's failure to reform healthcare. But labor's interpretation, which I share, is that working people felt betrayed and abandoned by Clinton's rightward turn toward NAFTA and Robert Rubin's Wall Street economics. Many working people stayed home in 1994; some even opted for Newt Gingrich's anti-establishment attack line.

Given Obama's great popularity, rebellion seems remote in the current circumstances. But that could change if the party once again turns its back on core constituencies. If Democratic senators sell out labor on healthcare reform, Panvini expects he will make different choices on whom the Sheet Metal Workers support. "No question about it, I would back people against some Democrats," he said. "But it's not up to me. The members themselves will get their revenge. I won't have to stir up anything."

The White House is trying to reassure labor groups, but President Obama has not yet ruled out the approach, and a labor coalition has already formed to push back. On June 8 thirty-one unions sent a joint letter to Congress warning against the proposal. If the campaign gains steam, labor leaders may find more allies among the estimated 160 million Americans who receive health coverage through the workplace. And they may also help galvanize the progressive groups--including Health Care for America Now and MoveOn--that are rolling out an $82 million campaign to push for a strong public health insurance plan.

The real source of labor's alarm--and the target of much of the pushback--is Senate Finance Committee chair Max Baucus, who has repeatedly described as promising a limit on healthcare tax benefits and has expressed qualms about the "public plan" option. Baucus has a history of ignoring the party's agenda and collaborating with "Rat Republicans," as Panvini calls them (see my "Senator Sellout," June 2, 2006, at TheNation.com).