Last week's cynical deal between the Obama administration and organized labor to exempt unionized workers from the so-called Cadillac health plan tax was portrayed as a victory for organized labor. In truth, the deal was a gift to public-sector unions by a president who is himself a member of what I call the New New Left, that is, the party of Americans who always benefit from a growing government. This New New Left rules the Democratic Party and significant parts of the GOP in some states, and public sector workers are anchor tenants in the New New Left's mall.
To understand the true nature of the White House deal, look at who actually comprises organized labor in America today. First of all, since both the country's private sector economy and the portion of private workers who are unionized have slumped in recent years, we have finally reached the point where there are more unionized government workers in America than organized private laborers. Moreover, in the private sector the composition of the union movement has changed dramatically by shifting away from high-wage manufacturing jobs and toward low-wage service jobs in industries like health care and building services. Many of these private service sector workers have only modest health insurance packages whose annual premium costs don't approach the point at which the health tax kicks in, so exempting them from the tax is meaningless.
By contrast, government unionized workers often have gold-plated health benefits packages that are among the most expensive in America. Several years ago, for instance, the Employee Benefit Research Institute noted in a report the growing gap in both salaries and benefits between the private and public sector, estimating that state and local governments paid on average about 120 percent more on an hourly basis for employee health premiums than private employers. That's why although the entire notion of a Cadillac tax began as a way to restrain pricey executive health plans in the private sector, Democrats in Washington soon realized that the tax would mainly hit their allies in public sector unions.
In places where government unions have the most influence, like California, New York and New Jersey, the cost of public health plans is well beyond what's typical in the private sector because public workers in these places make little or no contribution toward premiums, often don't have co-pays for doctor visits, and have a rich array of supplemental benefits that are rare in the private sector and drive the cost of health coverage skyward (and which the Cadillac tax was supposed to help restrain).
Many of these benefits, by the way, don't merely apply to current government workers but also to retirees because many states and cities now offer public workers attractive retirement packages that start at 50 for public safety workers and 55 for everyone else and which include full-health benefits until retirees reach the age that Medicare kicks in. Even then, government pays for retirees' supplemental Medicare coverage in many places. That's one reason why New York City, for instance, is currently paying health premiums for nearly as many retirees as current workers.
The health care deal, then, represents an unprecedented victory for public sector unions, and the deal shows where the next front in the growing battle between taxpayers and those who devour tax revenues will be fought. The burden these outsized public worker salaries and benefits costs have placed on government budgets everywhere has sparked a crisis and a search for new revenues. By exempting public employees from a significant revenue raiser, Washington has pointed the way. Expect more creative deals at the state and local level where government workers will be relieved of paying new taxes or otherwise have their tax obligations subsidized.
The health care deal, moreover, represents only the latest victory in what has been a very good period for public workers. In most places these workers have largely been insulated from the impact of the devastating recession. Hundreds of billions of dollars of the so-called federal stimulus bill actually went to insuring that state and local workers did not lose their jobs, one reason why the unemployment rate for government workers remains under four percent. This was among the least stimulative uses of deficit-financed spending because it preserved government jobs with no sense of whether these jobs were productive or necessary.
But the Obama administration has paid particular attention the politics of the public sector workforce. When California Gov. Arnold Schwarzenegger tried laying off government workers in the midst of the state's budget crisis, Obama officials at the behest of the Service Employees International Union informed the state that it would forfeit hundreds of millions of stimulus dollars if it reduced its workforce. Members of the Schwarzenegger administration were flabbergasted as officials from SEIU were allowed to participate in the conference call in which the Obama folks read the public-sector riot act to California.
Even as they have worked to defend the present, the New New Left is aiming to secure the future. That's one reason that the health legislation is so important to this political coalition, because whatever else it does, the legislation will bring more of our health economy under government control and, hence, under political influence. To understand what happens next simply look at how state expansions of Medicaid during the 1990s have burnished public sector organizing.
When California, for instance, began spending Medicaid dollars on home health care services in the naïve hope this would cut nursing home costs, the SEIU instituted a tenacious campaign to have the courts declare home care workers as public employees, and then SEIU ran a series of big organizing drives, including organizing 74,000 home health care workers in the greater Los Angeles area, which became the biggest union drive in America since the UAW had organized General Motors in 1937. Unions inevitably win these organizing drives because when government is the employer it does nothing to oppose unionization, making success a slam dunk. The only losers are the taxpayers who inevitably foot the bigger bills. But heck, how long has it been since government represented taxpayers in a place like California anyway?
Still, we can't blame all of this on the Obama administration. Indeed, the Bush years were quite good for public sector workers too. In fact, the last 50 years, ever since governments began allowing widespread organizing by public workers, have been one upward arc for government workers, so that today they surpass their private counterparts in pay, benefits and working conditions.
And now they've gotten their hands into the tax code, too.
This article first appeared on RealClearMarkets.