(FORTUNE Magazine) – AS TREASURY SECRETARY James Baker puts the finishing touches on the Administration's tax reform proposal, a formidable new coalition is seeking to ambush one of the biggest money raisers in the plan--taxation of such employee benefits as health care insurance. ''We're trying to head off the Administration at the pass,'' says Arnold Cantor, benefits specialist of the AFL-CIO, which has joined the U.S. Chamber of Commerce, big insurance companies, and consumer groups in fighting to keep employee tax breaks. Stakes are large. Tax-favored benefits account for 10% of an average American worker's total compensation. If all fringes had been taxed as income last year, the U.S. Treasury would have been fattened by about $100 billion. The biggest fight is shaping up over health care, an issue that organized labor is giving top legislative priority. The health and life insurers are in there pitching too, led by Richard Schweiker, President Reagan's former Health and Human Services Secretary who now heads the American Council of Life Insurance, a trade organization. The industry has spent over $1 million on an ad campaign. TV spots featuring pigeons and ostriches warn viewers that Washington is out to increase taxes, reduce benefits, or both. The punch line: ''We think it's for the birds.'' In addition, the industry has produced a video built around Dracula the bloodsucker. The Treasury also targets so-called cafeteria benefit plans, which allow employees to exempt some income from taxes and use it to pay for benefits of their choice, and deferred-income plans, which allow employees to invest salary tax-free until the money is withdrawn. The Treasury estimates that over five years it will miss out on $8.5 billion in taxes because of cafeteria plans and $4.6 billion because of deferred-income plans. The plan for taxing health care benefits isn't as mean-spirited as the coalition makes it sound. When employees pay a bigger portion of their medical bills, experience shows, they shop more wisely for health care, putting some restraint on soaring costs. But the Chamber of Commerce and other business groups worry that if employers provide fewer fringes, the government would ultimately be pressured to step in with new programs like national health insurance that would cost far more than the Treasury now loses to tax breaks. According to the coalition's biggest friend in Washington, Senate Finance Chairman Bob Packwood, the federal government would have to spend about $100 billion a year to provide the same level of health care that the private sector now provides with about $30 billion a year in tax breaks. The fringe forces have other impressive numbers on their side. A Roper poll commissioned by the health and life insurers and released in February shows that 77% of Americans--and 80% of the nation's corporate chief executives --oppose taxing employee benefits.