Your Moment of Modality
I had the opportunity to study modality — the branch of philosophy dealing with possibility and counterfactuals — with Professor Richard Heck in college. It was only one unit in a single course, so I couldn’t say that I have a very sophisticated understanding of all the issues. But one thing I got loud and clear is that the truths of basic arithmetic are necessary truths, it’s not possible that 2 plus 2 could equal 4. Thus we get Marc Ambinder’s attempted fact check of Barack Obama’s criticisms of John McCain’s health care plan:
The truth is that it… well, it might not– although McCain would require Americans to begin to pay taxes on the health benefits their employers provide to them, some analysts think that they’d get more than that money back in the form of the refundable tax credit that McCain is proposing to offset the tax hike. (We’re talking about a tax on the benefit, not the benefit itself, and McCain would not apply the levy to the payroll tax.)
Of course, if employers drop coverage, the money McCain would give employees might not cover the cost of the premiums which average more than $12,000 per family.
As Brad DeLong observes, the fact that McCain’s tax credit maxes out at $5,000 seems relevant here. There’s no “might not” about it — $5,000 is less than $12,000.
The other missing piece here, which we at CAP and CAPAF have been trying to drive home, is that the value of the existing insurance tax break rising in line with the growth in the cost of health care. McCain’s tax credit would, instead, rise in line with the CPI. But since health care costs rise faster than the CPI, the purchasing power of McCain’s credit would erode over time. McCain has structured his plan so that if his critics say “McCain will raise taxes on health benefits enjoyed by millions of middle class families,” gullible media fact-checkers will say “wait a minute, he’d really…,” but this offset will vanish in a couple of years so there’s nothing really very complicated about it.
51 Responses to “Your Moment of Modality”
Register
RSSLogin
Topic Cloud
ArchivesBlog RollAbout Matt YglesiasContact Me
Donate
September 18th, 2008 at 10:31 am
Please read that first paragraph again.
September 18th, 2008 at 10:32 am
“[I]t’s not possible that 2 plus 2 could equal 4.”
If you believe that, it’s not too surprising that you get the other half wrong too.
I’ve said this repeatedly in other threads. The tax credit is a credit to the taxes; 5,000 is 41.67% of 12,000, which means that you get a full refund on your taxes unless your marginal income tax rate is higher than 41.67%.
The part about the CPI is true, though.
September 18th, 2008 at 10:34 am
Wait, hold on. Does McCain’s tax credit mean the first $5000 of money you spend on health insurance is tax exempt? Or does it mean the first $5000 in taxes you would spend on income used to pay for health insurance is refunded to you? I’m confused.
September 18th, 2008 at 10:34 am
I think you trusted Professor Heck a little too much.
September 18th, 2008 at 10:38 am
Yes, this distinction is important. McCain’s plan, as I understand it, would treat those premiums as taxable income. If the $5K were a deduction, then it would reduce your taxable income by only $5K, failing to counter-balance the increase. But if it’s a tax credit, then it’s subtracted from whatever number you’d write on the check at the end.
September 18th, 2008 at 10:43 am
Didn’t expect to see this here. Heck is one of my professors at Brown.
September 18th, 2008 at 10:44 am
Well, now both DeLong and Yglesias have discredited themselves. If you don’t kjnow the difference between a tax credit and a deduction, you shouldn’t comment on tax policy.
I think Harvard may call and ask for the diploma back.
September 18th, 2008 at 10:45 am
Actually, the most important point is the next sentence:
This is why McCain should be trailing by twenty points. Destroying employer-based health care and replacing it with, well, nothing, would really screw millions of Americans. Drill, baby, drill!
September 18th, 2008 at 10:46 am
Look at that picture! Some goateed, long haired hippie communist Harvard professor claiming 2+2=4? John McCain spent 5 1/2 years as a POW, being waterboarded and even tortured, and had the courage and patriotism to refuse to admit that! Why does Logic hate America?
September 18th, 2008 at 10:54 am
This Yglesias post should be filed under, “Things I Wrote While Doing Something Else”.
September 18th, 2008 at 10:55 am
Because if Mario is right, then the problem remains what happens if your employer drops you from group coverage. The key would be whether the employer then gives you the money they would have otherwise been spending to cover part of your insurance premium, or whether they would just keep that money.
Like, let’s say you’ve got employer-subsidized family health coverage that costs $10,000 a year, of which you pay $5000 and the employer pays $5000. This is all tax free now, right? Then McCain’s plan is passed and you now have to pay, say, 28% tax on that $5000 and so does your employer. So that’s $1400 in taxes out of your pocket. (Does McCain give you those taxes back with his credit? I’m not clear on this.) And your employer’s half of the coverage now costs $6400 after taxes, and they say, forget it, and drop health coverage.
Now you’re out in the private individual market. Your family health insurance is going to cost $12000 instead of $10000 total. (Maybe the markup is way higher than this though. That’s an issue too. But say it’s like this.) And you’ll be paying the full $12000 instead of just half of it. But you’ll get a refund of whatever taxes you pay on that $12000, which at 28% is $3360. So where previously you were paying $5000 a year for health insurance, you’re now paying $8640. But if your employer gives you a $5000 raise with the money they used to use to pay your health insurance, and if that’s taxed at 28%, then you now have another $3600. Which almost cancels out the extra $3640 you have to pay in health insurance premiums.
It seems I have no idea what is actually going on here and have just engaged in an extended exercise in seventh-grade math.
September 18th, 2008 at 10:57 am
Andrew, care to learn me how 2 + 2 could possibly equal 7?
September 18th, 2008 at 11:00 am
As I understand it, the balance of the credit would be deposited in a health savings account, so that there would be no benefit to getting a more expensive than optimum plan.
Also, if you paid for your insurance on the individual market it wouldn’t be taxed, as it isn’t income, so the benefits of being in a group plan as opposed to an individual one would largely disappear too, assuming that you received close to the full value in cash from your employer when your coverage ceased. This isn’t really as crazy as it sounds, since one would assume that if your employer could afford to pay you less, he’d already be doing so.
September 18th, 2008 at 11:06 am
Mario — the benefits of being in a group plan are more than the tax break you get because it’s paid for by your employer. Insurance in group plans tends to be cheaper, due to economies of scale.
September 18th, 2008 at 11:08 am
I haven’t seen mention of this. Does McCain’s plan require insurance companies to cover anyone, and charge them all the same price?
If that was part of the deal… such that there was transparency in billing. Such that you could compare prices easily, then it might not be so bad.
I do think fundamentally McCain’s attitude is America has too much health insurance, and this is part of his goal to get rid of it.
September 18th, 2008 at 11:12 am
OK, Matt Y.’s claim is that the $5000 credit will not pay for the $12k premium that you would have to pay on the individual market if your employer drops your coverage. Is that supposed to be wrong?
Mario’s response seems to be that, when your employer drops your health coverage, they’ll give you a raise equal to the cost (to them) of the health insurance, so it’s all good. Have I got that right? Because it’s my understanding that wages are sticky, so that’s not likely to happen. (Both because they’re sticky downward, which accounts for why your employer hasn’t cut your wages already, and because they’re sticky upward, meaning it’s harder to get a raise than this assumes.)
September 18th, 2008 at 11:16 am
Mario, are you assuming that most employers, if they scrapped their health plans, would just give their employees raises instead? I’m not sure I’d bank on that.
September 18th, 2008 at 11:17 am
Richard Steven Heck?
September 18th, 2008 at 11:23 am
From McCain’s Website:
“While still having the option of employer-based coverage, every family will receive a direct refundable tax credit – effectively cash – of $2,500 for individuals and $5,000 for families to offset the cost of insurance. Families will be able to choose the insurance provider that suits them best and the money would be sent directly to the insurance provider. Those obtaining innovative insurance that costs less than the credit can deposit the remainder in expanded Health Savings Accounts.”
Assume the plan goes into effect 1-1-09. From a cash flow issue- under the plan, do I need to come up with the premium dollars throughout 2009 and then get my “effectively cash” credit sometime in 2010 when I file my taxes? If so, that doesn’t seem very appealing.
September 18th, 2008 at 11:24 am
It is a pedantic philosophic point, but then this post is framed as a pedantic philosophic point, but modality by itself is not the issue here.
2 +2 =4 is both necessary and possible.
What is really at issue here is a matter of Gricean implicature. To say that the tax credit may not cover the cost of replacing insurance is to imply that one is not in a position to make the stronger claim that it will not do so. So what Yglesias is really objecting is not that Ambinder says something which is false because of the modality given, but rather something that is misleading because of the implicatures to be drawn from the modality given.
Although if one is being pedantic it should be noted that it is not necessarily true that the the tax credit won’t cover the health care costs. The 12,000 is an average. So while it is necessary that the tax credit will not cover the same health care for everyone who loses it, it is possible that some of the healthy people with lower than average health care costs could get health care for the tax credit amount. And from the information given it is possible, but unlikely that the average is skewed by some very expensive unhealthy people so that even most people could pay for their health care with the tax credit.
I suspect that if one looks at the numbers more closely then this last point will turn out not to be the case. But one cannot get that at the level of a study of modality.
September 18th, 2008 at 11:34 am
Matt hasn’t just been suggesting that the $5k would be insufficient to replace employer coverage (when you assume no commensurate increase in wages) he keeps suggesting that it is
insufficient to cover the proposed tax bill of employer health coverage now. Regardless of the assumptions made, that just isn’t true.
I can’t say how much of the premium workers would receive, but if they didn’t receive anything it would amount to a 25% cut in pay, and I just don’t see that happening. I wouldn’t be surprised if the employers tried to keep some for themselves, that’s what they do, but the bulk of it should remain in the hands of the workers. Again, if the company could get by by offering lower pay, the pay should already be lower. Presumably they are already offering the lowest amount in salary and benefits they can manage while keeping the desired workforce, and I don’t see why that should change.
As for Milind’s comment, that’s true, but I don’t have any numbers about the current average cost of privately purchased health insurance, so I can’t say which is better. Either way, since the tax credit is $5,000, the cost of the private plan would have to be $5,000 more than the wage increase, when all is said and done, for it to be worse. I don’t know if that is the case, but I imagine it would be vary quite a bit around the country.
September 18th, 2008 at 11:42 am
Factcheck seems to think this plan favors a particular group: “Those who would benefit most from McCain’s tax credit are those who already buy their own private plans and don’t receive tax benefits.” I.e., people in McCain’s tax bracket (but not McCain himself, who already has government health care).
Big surprise.
As for its impact on employer-sponsored health-care:
I have to conclude that McCain just fucking hates this country.
.
September 18th, 2008 at 11:43 am
Hmmm. What’s not clear is if this “direct refundable tax credit” (whatever that means) is payable only to those who pay that much or more in income tax. One would also wonder whether or not the insurance premiums are taxable. If so, $12,000 in payments at at 30% rate would be taxed at $3,600, making the–um–”direct refundable tax credit”–nearly worthless.
Or, perhaps you can deduct the payments as well?
Another well-thought-out GOP plan.
September 18th, 2008 at 11:48 am
Someone please do an analysis of how our investments would have faired during the Bush years if we were wise enough to accept GOP’s plan of giving us our God given right to manage our own retirement and invested in titans of Wall Street.
September 18th, 2008 at 11:55 am
Matt hasn’t just been suggesting that the $5k would be insufficient to replace employer coverage (when you assume no commensurate increase in wages) he keeps suggesting that it is
insufficient to cover the proposed tax bill of employer health coverage now.
That’s completely not what this post says. He says it won’t cover premiums on the individual market, and that it soon won’t cover tax on the employer health coverage, since the cost of coverage rises faster than the tax break will.
Again, if the company could get by by offering lower pay, the pay should already be lower. Presumably they are already offering the lowest amount in salary and benefits they can manage while keeping the desired workforce, and I don’t see why that should change.
See “stickiness of wages,” above.
I don’t have any numbers about the current average cost of privately purchased health insurance
See this post. Short answer: high, if you can get it.
September 18th, 2008 at 11:57 am
What’s not clear is if this “direct refundable tax credit” (whatever that means) is payable only to those who pay that much or more in income tax.
Thom Jeff — I believe “refundable” means that if you don’t pay that much in income tax, you get the credit back as a refund. So, no.
September 18th, 2008 at 11:59 am
This does seem to be an issue that is easier to talk about if it is oversimplified.
The point of the tax credit is not to give taxpayers more money, so the fact that it is nearly worthless (as Thom Jeff points out) is somewhat besides the point. The purpose of the tax credit (and the balancing out tax increase on premiums) is to make people switch from employer health care to private health care.
Mario is most likely right that companies that pay employee health care will then have to give either other benefits or higher salaries to hold on to its skilled workers. So some of the costs will presumably be offset.
The real losers would likely be unskilled workers at companies which provide health care to everyone in order to keep their skilled workers. I don’t know what percentage of companies does this, although I am pretty sure mine does.
The McCain website actually says that this credit would go directly to ones insurance company, which seems somewhat bizarre. What a bureaucratic nightmare. Would our insurance have to be on file with the IRS? In the unlikely event that ones insurance is less than the credit, the money would automatically be put into a health savings account. All of this is rather different than an ordinary credit which simply gets added like a previous tax payment on ones tax forms.
Except that some tax credits can only bring ones tax burden down to zero, while others can go beyond zero (like the EITC which can give one a negative tax burden, but only if one makes more than a certain amount of money). It obviously makes a big difference which kind of credit this is. Will people who have no tax burden based on income still have 2500 or 5000 go to their insurance company? If so the working poor could benefit over the current system. If not they probably lose on balance.
Finally, it is not clear what the standard of individual vs Families is here. If it is tax filing status then there will be a lot of divorced fathers out there who pay their children’s insurance but file as individuals, who will actually see a tax increase.
But overall it does appear the charge that McCain supports a tax increase here is false. McCain’s plan is likely to cost a lot of people money, but it will be in the form of insurance premiums rather than tax increases.
September 18th, 2008 at 12:10 pm
From philosophy studies, I assume Matt knows Quine’s wonderful assault on necessary truth. Perhaps McCain simply gives new meaning to Quine’s “Our statements about the external world face the tribunal of sense experience not individually, but only as a corporate body.” The corporate body at issue just happens to be an HMO or your employer.
September 18th, 2008 at 12:23 pm
To cut through some of this clutter, for a given person/family, let:
p0 = premium under the old rules
x = employer contribution to premium
d = total tax deduction (employer and employee)
p1 = premium if employer can’t deduct and insured is part of smaller group or no group at all
c = refundable credit in McCain bill (refundable indeed means, like the earned income credit, you still get it if you have no tax liability).
w = wage increase if firm no longer contributing to employee insurance.
Then an individual’s cost under the old system was/is
p0 – x – d
and under the new system
p1 – w – c
If the second expression is smaller than the first, then it’s a good deal. If not, then not so much.
Note that McCain’s proposal isn’t revenue neutral, as the current average employer/employee tax deduction is surely considerably less than the tax credit would be. So we have to ask, not just whether it is a better deal for working families, (I really don’t care if it’s a better deal for the affluent), but also is it enough of a better deal to justify the loss of revenue and the payouts. That probably depends to a large degree on whether p1 is less than p0, and for whom that holds.
September 18th, 2008 at 12:32 pm
The whole point of McCain’s plan is suppsoed to be that it wwill use market forces to reduce the cost of health care and ehalth insurance, by making people personally responsible for their insurance, and thereby reducing demand. Now think about that for a minute. Apart from all the other problems with it, it can only work if the tax break people get is less than the cost of health insurance under the present system–otherwise, there is no market force reducing demand. So of course McCain’s proposeal must on its face leave people financilly worse off, although McCain thinks/hopes that the difference will disappear a little bit down the road, as the market catches up with the reduced demand. To the extent that it does not leave people at least temporarily financially worse off, it won’t work.
September 18th, 2008 at 1:16 pm
Employers won’t just drop everyone overnight. What will happen overnight is that everyone who has employer-based health insurance is going to be taxed on about $12,000 of income that was never taxable before. When the premiums go up 10%, people will be taxed on $13,200. And every time premiums go up there will be an automatic McCain tax increase to go with it.
September 18th, 2008 at 1:21 pm
kth has obviously been reading Bertrand Russel.
Mario, your thesis depends on employees understanding the real cost of their employee-provided health benefits. Which they don’t. Dropping of health insurance may be an effective 25% cut in pay. It won’t be seen that way. There will be some motility on the margins as people look for work at places that keep health benefits (but those places will be few and far between). But most people will see their paychek stay about the same and therefore won’t think of themselves as having received a pay cut, even when they do have a brand new, huge, expense.
Anyway, McCain’s health plan is enough of a reason not to vote for him (one of millions), but it’s not really something to worry about, because even if he’s elected, something this stupid will be D.O.A. in the Congress.
September 18th, 2008 at 1:30 pm
MY, correct the fucking error.
everybody makes mistakes.
some folks acknowledge them by correction.
why distract from your argument?
September 18th, 2008 at 4:11 pm
There is no doubt, it is designed to shift health care costs to workers — and away from employers’ balance sheets. In addition, they are taking trend rate differences away from us.
This is typical in labor talks, we’ll give you $200 a month for $200 per month in health costs. they want the trend difference, not immediate relief.
It is designed to inflict major pain, so you won’t go to the doctor. Even they are clear about that.
March 1st, 2009 at 6:03 am
viagra
If you have to do it, you might as well do it right
March 1st, 2009 at 7:05 pm
cialis
Great site. Good info
March 11th, 2009 at 4:55 am
Great site. Good info
March 17th, 2009 at 2:32 am
If you have to do it, you might as well do it right
tramadol
March 22nd, 2009 at 6:28 am
tramadol
It is the coolest site,keep so!
April 2nd, 2009 at 5:33 am
Excellent site. It was pleasant to me.
buy cheap viagra
April 3rd, 2009 at 4:22 am
Excellent site. It was pleasant to me.
cheap brand pfizer viagra
April 9th, 2009 at 7:05 am
thanks !! very helpful post! viagra