Matt Yglesias

McCain’s Health Care Tax Hike

One issue that hasn’t gotten nearly the widespread attention it deserves is that in the context of John McCain’s overall policy for steep tax cuts for high-income Americans he’s also proposing a very significant tax increase on the broad group of people who receive health insurance through their employers. Specifically, at the moment compensation you receive from your employer in the form of money is subject to income tax, but compensation you receive from your employer in the form of employer contributions to health insurance premiums is not taxed. McCain proposes to change this and start subjecting those benefits to taxation. Some people, obviously, don’t have employer provided health insurance in which case this won’t make any difference to them. But for those of us who do get insurance through work, this is a very big increase.

Doug Holtz-Eakin, writing for the McCain campaign disputes the characterization of this policy as a tax increase, arguing instead that it “is a transformation of the tradition of a tax subsidy to private insurance to make sure that subsidy is fair, both in the sense that it is available to every American regardless of the source of their private insurance and that every person gets the same amount — $5,000 for a family, $2,500 for an individual.” James Kvaal counters that McCain’s plan “would tax workers’ health benefits, which are largely tax-free today,” thus increasing the amount of tax people need to pay, which is a tax increase in any common sense understanding of the term. More important, though, is the fact that the new somewhat counterbalancing subsidy McCain is proposing won’t make up the difference over the long run:

Second, the value of McCain’s credit will erode quickly. While health care premiums are expected to grow by 7 percent a year, McCain’s credit will increase by only about 2 percent a year. In contrast, current tax benefits keep up with rising premiums.

You can read more here (PDF) but I would note that one thing we’re seeing here is the basic fatuousness of the conservative monomania about low taxes. What Holtz-Eakin is really trying to get at here is that Holtz-Eakin thinks McCain’s proposal is a good proposal that will treat people more fairly. This is debatable and goes to the issue of whether or not it makes sense to reduce the overall scope of public subsidy for health insurance at a time of rising health care costs in order to clear budgetary space for high-income tax cuts. But pretty clearly what’s proposed here is a tax increase. Which in a sane world, conservatives would be prepared to admit. But since they’ve spent the past 30 years trying to convince people that any hint of tax increase for any purpose is the purest evil they’re now stuck in a rhetorical trap of their own devising.