Good and bad, our labor history lives with us

It is hard to believe it is already Labor Day. With the traditional end of summer, the political season will soon begin to ramp up. The holiday offers a respite before we plunge into the home stretch of campaigns.

The paternity of “Labor Day” as a day off is disputed. Both a Mr. McGuire and a Mr. Maguire claimed the idea their own. Peter McGuire claimed he chose the first Monday in September as it stood in between the public holidays of Independence Day and Thanksgiving. That made it a good “pit stop” along the working calendar, filled with parades, cigars, and lager.

Russ Dillingham/Sun Journal

America’s September celebration stands apart from much of the rest of the world, who associate their Labo(u)r Day with “International Workers’ Day,” or “May Day.” Put forward by socialist and communist organizations, it commemorated physical violence in Chicago related to a strike. Two protesters were killed by police; the following day, a bomb killed seven police officers. This led to a prejudicial trial and … well, there is quite a bit more to the story.

But while the so-called “Haymarket Affair” is a seminal moment in our nation’s economic history, so too are other union initiatives inextricably tied into the world we find ourselves in. Like our challenge in fixing health care.

If you ever stop to think about it, there is a very obvious question about health insurance: Why the heck do we look to our employer to provide it? After all, we get our car insurance and our homeowners insurance through agents and the internet. Whatever the cost is, we pay it. We don’t lose it when we leave a job. So what makes health insurance different?

FDR. And unions. And businesses.

When America entered World War II, our industrial might — the “arsenal of democracy” — was faced with a severe labor shortage. Millions of prime age men were being sent overseas. To “stabilize” the labor market, President Franklin Roosevelt signed an executive order instituting a wage freeze. Businesses were no longer able to pay their employees more money, even if they wanted to.

However, in free enterprise systems, ingenuity finds a way. So employers began to offer “fringe benefits,” like paying for health insurance. The Roosevelt administration ruled these payments were not subject to the “freeze,” and the IRS decided they were not wages that employees would have to pay taxes on.

After the war ended, the wisdom of excluding these payments from taxable income began to be questioned. It appeared to be a tax loophole; your employer could either pay you more, from which you would have to pay taxes (and the business pay payroll taxes), or they could just pay more into your fringe benefits, which was effectively tax free for everyone.

Unions and business groups alike rallied to save the special treatment for health insurance. Voila — today we have a massive portion of our economy and well-being inextricably tied to our jobs. And we have “insurance” programs that are not actual insurance for large, unlikely, unexpected costs where the risk is spread far and wide, but service plans expected to cover even routine check-ups that everyone should receive.

It is an example of the law of unintended consequences in action. The pursuit of a seemingly minor tax advantage in the 1940s and ’50s — by unions and businesses alike — has built an unwieldy health care edifice, economically ossified. Indeed, President Dwight Eisenhower suggested instead a national health care reinsurance program, letting people buy their own plans directly while spreading risk further afield. If that sounds a lot like Maine Republicans’ “invisible high risk pool,” it should.

Nevertheless, while these parts of our past may create challenges for us today, they are also a reminder that Americans need not be adversarial. Our health care legacy — problematic as it is — is one of unions and businesses working together. And, while many “Labor Days” across the globe commemorate violent struggle and work to foment division, America’s Labor Day is a restful oasis — full of lager and other joyful refreshments — en route to Thanksgiving. That is true whether McGuire or Matthew Maguire gets the credit.

Have a wonderful holiday.

Michael Cianchette

About Michael Cianchette

Michael Cianchette was the chief counsel to Gov. Paul LePage from 2012-2013 and deputy counsel from 2011-2012. A Navy reservist, he was deployed to Afghanistan from 2013-2014 as a trainer and adviser to the Afghan National Police. He is an alumnus of the Leadership Maine program and holds a BA in economics and political science from Boston College along with a JD and an MBA from Suffolk University. He works as in-house counsel and financial manager for a number of affiliated companies in southern Maine.