Robert A. Levy

As the Massachusetts blame game unfolds, the president’s unpopular health bill leads the list. But the substantive provisions of the bill were just part of the problem. Perhaps more important, voters were appalled by how the deal unfolded.

Consider the pre-election giveaway to the labor unions. Negotiators agreed to exempt union contracts until 2018 from the tax on so-called Cadillac health-insurance plans. That backroom bargain not only outraged the voters, it also violated the Fifth Amendment to the Constitution, requiring the federal government to extend equal protection of the laws to all U.S. persons. Of course, not all voters understood the constitutional nuances, but they sensed that something was very wrong; and they reacted.

For the record, here's the constitutional framework: If government were to discriminate against a specially protected class (racial, religious, or by nationality), its laws would be rigorously scrutinized by the courts. So too if government infringed on a "fundamental" right (such as speech, press, religion). But enrollees in non-union Cadillac health plans are not a specially protected class, and the right to an untaxed Cadillac plan is not deemed fundamental. That means the tax would be reviewed by the courts under a more relaxed standard. Essentially, courts would give great deference to the legislature, which could do pretty much anything that's reasonable. Rarely would a court override the judgment of our elected representatives. But “rarely” is not the same as “never.” Congress may not classify groups for differential treatment based on a criterion that bears no plausible relationship to the asserted goals of the legislation. The justification for discriminatory regulation must be legitimate – not simply a payoff to get the bill passed.

Yes, tax legislation often discriminates among parties. But discriminatory taxes are typically tied to social costs (e.g., cigarette taxes offset public expenditures for smoking-related illnesses), or regulatory objectives (e.g., alcohol taxes discourage excessive liquor consumption), or reciprocal benefits (e.g., gasoline excises pay for highways), or income redistribution (e.g., taxes on Cadillac health plans subsidize policies for the uninsured). By contrast, the tax on non-union plans was tied to none of those. Non-union plans do not impose higher social costs than union plans. There are no regulatory reasons that would justify unequal taxes. No benefits are extended to enrollees in non-union plans that are denied to enrollees in union plans. Nor is income redistribution from non-union to union workers a rational goal of health care reform.


Robert A. Levy

Robert A. Levy is chairman of the Cato Institute's board of directors.