GM’s auto parts spin off, Delphi Corp., is declaring bankruptcy, and pundits are using that to call for protectionism and other policy changes. In The Oracle That Is Delphi, Duane D. Freese argues that neither protectionism nor nationalized health care will work and explains the policy history underlying employer-provided pensions and health care:
The worst thing that happened to manufacturing in this country may have been when government decided to exempt its provision of pensions and health insurance from taxation.The Revenue Act of 1913, implementing income taxation after the passage of the 16th Amendment allowing it, exempted pension trusts from taxation, encouraging the development of such plans over personal saving and investment. Then in World War II, FDR’s wage and price board allowed employers to get around the controls put in place for the war by allowing exceptions for both pension trusts and health insurance. [...] And the connection between employment and health insurance was cemented by the Internal Revenue Service in 1954, when it stipulated that employer contributions to health insurance plans for their employees were to be excluded from employee taxable income.
The result of these tax favors was to boost benefits’ share of costs from 20% of compensation to more than 40%. And while it relieved workers and retirees of worrying about their retirement income and their health care needs, it also stopped them thinking hard about it as well — an oversight that contributes to a low national savings rate and skyrocketing health care costs.