Why Capping the Health Benefits Tax Exclusion is Worth Considering
Getting some of the tax revenue necessary to pay for health care reform by taxing some employer-provided health benefits is under serious consideration on the Hill, and according to some reports the administration is open to it. John McCain proposed taxing health benefits and Barack Obama criticized him sharply for it on the campaign trail, so this is prompting some awkward moments for Obama advisers like Austan Goolsbee:
A more articulate defense is offered by Igor Volsky at the Wonk Room:
The problem was never the tax exclusion itself. Rather, progressives were concerned about what would happen to individuals who lost their employer-sponsored health coverage once the tax code changed. McCain proposed replacing the employee deduction with a one-size-fits-all tax credit without reforming the health insurance market or expanding access to group coverage. Under his plan, Americans who lost their employer coverage would have had to fend for themselves in an unregulated individual health insurance market; Americans with pre-existing conditions would have joined the ranks of the uninsured.
Obama is using the measure as a means to finance comprehensive reform. Should someone lose their employer-based coverage, they will be able to purchase affordable insurance through a regulated exchange that cannot deny coverage to Americans with pre-existing conditions.
Perhaps the right way to think about this is that limiting the tax-preferred status of employer-provided health care has long been on progressives’ radar as a possible way of financing health care reform. Part of the appeal to the McCain campaign of using this method to pay for their own proposals was almost certainly that they knew perfectly well that many progressives were on record as supporting something superficially similar. This, they hoped, would compel progressives to “go soft” on McCain’s proposed tax hike. But they were wrong. Still with any tax, you have to ask what you’re getting for the tax to really evaluate it. Comprehensive health care reform requires additional revenue, and that’s bound to make someone unhappy. But there are a variety of possible revenue sources that would be well-worth the cost in order to achieve the substantial benefits of health care reform.
17 Responses to “Why Capping the Health Benefits Tax Exclusion is Worth Considering”
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March 16th, 2009 at 4:02 pm
One of the differences between a good job and a bad job in the US is employer-paid health insurance. If my health benefits go from untaxed to taxed, I go from having a good job to having a kind of crappy job. This is a tax increase on the professional middle class, which I thought Obama was against. His rejection of McCain’s proposal to tax my benefits was among the reasons I voted for Obama.
March 16th, 2009 at 4:48 pm
This is an idea that is sure to kill the whole thing. It is exacerbating the problem of the uninsured by creating more uninsured. I bet the point is to be a poison pill that will make the whole proposal untenable to many Americans.
March 16th, 2009 at 5:37 pm
@4: Don’t know whether it’s intentional, but as someone who supports meaningful health care reform, but who currently has employer-paid insurance, the proposal would kill the whole idea for me.
March 16th, 2009 at 6:10 pm
The devil is in the details here. From what I have read there is no proposal to tax health benefits 100%, only to tax them over a certain (fairly high) dollar limit. Most people would be unaffected. Only those with gold-plated coverage (generally the same people with million dollar bouses and golden parachutes) would need to worry.
March 16th, 2009 at 7:41 pm
This is like tax on a Social Security check. Is it a useful accounting trick?
March 16th, 2009 at 8:06 pm
Re: taxing health insurance benefits — Terrific idea. Absolutely horrible politics. I can’t imagine Democrats in Congress would be stupid enough to push this. Maybe — just maybe — they could get away with it if they focus solely on the benefits of the well to do, but at that point you’re not talking about very much revenue, so it’s hard to see what’s the point.
Let’s also recall that Obama lied when he attacked Hillary’s health care proposal. He was adamantly against her proposal individual mandates to get health insurance.
Al: During the primaries the Obama campaign explicitly refused to take mandates off the table. They’ve maintained all along — even though they’re not fond of the concept and criticized Hillary for making them a centerpiece of her plan — that mandates may be necessary.
This is like tax on a Social Security check. Is it a useful accounting trick?
Social Security benefits (over a certain dollar figure) are, of course, taxable income under the status quo, and have been for nearly three decades.
March 16th, 2009 at 8:21 pm
So let me understand this. Currently, health insurance is not included in income from employers, and companies can use payments for health care as expenses to lower their on paper profits and reduce their taxes. Essentially, Health Insurance provided by employers is entirely untaxed.
For those who employ themselves, they pay taxes on their entire incomes, then buy insurance from a private company in the “unregulated” market. Essentially, they are taxed on Health Insurance.
John McCain wanted to rectify this problem by including Health Insurance in all incomes and then giving a ~5000 dollar deduction to all people who had insurance. This would favor those with less money because they generally have cheaper insurance. It would also encourage all people to think more about getting their own insurance, insulating them from lost jobs or other unexpected circumstances. A perfectly logical solution.
The level of obfuscation practiced by Liberals on this issue is sickening. Expanded benefits, preferential treatment for the poor, and more importantly, choice, and all Liberals can do is shout at the top of their lungs about how John McCain wanted to tax health care.
March 16th, 2009 at 8:55 pm
Nathan, self-employed individuals can deduct the full amount of the health insurance they buy for themselves and their family.
March 16th, 2009 at 9:43 pm
Answer me one question:
In what sense is additional revenue necessary for FedGov to “pay for” health care reform?
March 16th, 2009 at 11:47 pm
Yeah, a $5000 deduction is going to cause me to think it would be better for me to pay $12,000+ a year for health insurance instead of the $3000 my husband and I pay now through his employer. I don’t think so….
And oh, noez! Teh Dems is giving preferential treatment for teh poor. Yeah, you know, the people who need the most help. Arg! The world is coming to an end.
Yeesh!
March 17th, 2009 at 9:09 am
Nathan,
$5000?
Bwah hah hah hah hah hah hah!!!! Yeah, that’ll get you enrolled in the “Blue Shit” plan.
March 17th, 2009 at 9:14 am
I’m sorry, sir, but Blue Shit doesn’t have a family option.
March 18th, 2009 at 4:16 am
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March 24th, 2009 at 3:46 pm
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