Simpson-Bowles Deficit Reduction 2.0

Former Senator Alan Simpson (R-WY) and Erskine Bowles, Chief of Staff to former President Bill Clinton released an updated version of their plan to reduce the federal deficit.  The updated plan is not very specific, however, it says enough to be of great concern to airline pilots.

Again, Simpson-Bowles relies upon taxing employer provided health care benefits to reduce the deficit.  This misguided policy will cause economic harm to about 160 million American workers, including every U.S. ALPA member, by significantly raising their taxes.

In the past, Simpson and Bowles have attempted to explain that the money will be used to lower marginal tax rates so it will have little or no effect on these workers.  What they ignore is the fact that health premium inflation is typically much higher than standard inflation and wage growth.  For example, in 2011, health care inflation was 3 times that of ordinary inflation and 4 times that of wages.

The Economic Policy Institute, a non-partisan think tank, performed an analysis of the original Simpson-Bowles plan in 2011.  Some of the highlights are as follows:

  • 61% of workers would be hit by the tax in 2018.  By 2038, 100% of workers with employer provided health care benefits would be hit with the tax.
  • In 2038, workers could be paying taxes on an additional $46,000 of non-wage income (health care benefits)
  • An estimated 20 million people would lose coverage because employers would stop offering health insurance if it is taxed

The Simpson-Bowles plan to tax employer provided health care benefits is a non-starter for airline pilots.  Even though the tax exemption for employer provided health care benefits is the largest tax expenditure in our tax code, it is also a benefit that is enjoyed by over 80% of middle-class Americans.  Labor unions are united on this issue and ALPA will continue to play an active role in defeating this misguided policy.


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