It’s Fix the Tax Code Friday! This week, health care reform is in the news again, this time with a focus on the proposed excise tax for high-premium insurance plans.
The latest proposal for health care reform includes a controversial excise tax for high-premium insurance plans which exceed certain thresholds. Much of the concern, especially as put forth by union groups, focuses on the idea is that the thresholds are too low.
The proposed threshold are $8,000 for a single person or $21,000 for a family per year. For workers in high-risk jobs and retirees over the age of 55, they are $9,850 for a single person and $26,000 for a family per year.
So today’s Fix the Tax Code Friday question is:
After you cast your vote, sound off below!
In case you’ve been spending a few too many late nights awake, you can read the current Senate Finance Proposal here. It will download as a pdf.
Don’t call it the Obama health care tax.
On Sunday, Health and Human Services Secretary Kathleen Sebelius clarified on CNN’s State of the Union that the proposal being considered in Congress to tax employer provided health care benefits was not endorsed by her boss. Obama had opposed such a tax during his candidacy; his opponent, Sen. John McCain had supported the plan.
But now that a similar plan is making its way through Congress, the White House wants taxpayers to understand that he’s not a fan of the proposal. No wonder since several recent surveys show an overwhelmingly opposition to taxing benefits. Sebelius did not, however, refer to the plan as a “deal breaker” leaving the door open for an Obama endorsement if Congress can’t come up with something better.
Obama favors a cap on tax exemptions for those making more than $250,000 per year. This is the same plan that he proposed months ago – a plan which Sen. Max Baucus (D-MT) then opposed, questioning whether the plan would work.
It’s no surprise that the GOP joined with Dems in rejecting Obama’s proposal even though the Obama administration tried to play the “Reagan card” by pointing out that the caps would bring limits back to the Reagan years. The GOP opposes any cap on exemptions and instead, as blogged earlier, proposes a new tax on the benefits of the most expensive employer-provided health insurance plans, the so-called Cadillac plans. Sen. Lamar Alexander (R-TN) is one of the most vocal supporters of tweaking tax benefits for Cadillac plans, possibly in conjunction with a plan that would give employees cash to buy their own private insurance.
So let me sum up… The GOP said yes to taxing health care benefits in fall, and the Dems said no. Then the Dems said yes – and no – while several key members of the GOP said no. Obama keeps saying no – but not “deal-maker” no. And the GOP decides to go back to the plan from earlier.
Anyone getting the real sense, as Sen. Judd Gregg (R-NH) that the chances of passing a health care reform bill before the August break are “very unlikely”? Hands up… Yeah, that’s what I thought.
In an effort to fund their massive health care plan, members of Congress are scrambling to find revenue. After searching under their car seats and sofa cushions for extra change, they have basically admitted that the well is simply dry.
And that proposal to tax employer provided health care benefits? It’s just not picking up enough support to push through. Democrats, in particular, are balking. It is, after all, the run up to the 2010 elections – and no one wants to raise taxes on the run up to the elections, especially when 36 seats are up for grabs in the Senate alone.
Wait. I meant that no one wants to raise taxes on the middle class on the run up to the elections.
The rich? That’s a different story. Sen. Kent Conrad (D-ND) has now advised that members of the Senate are considering taxing employer provided health care benefits but exempting benefits under $25,000. That would mean that only those with the most expensive health care plans, sometimes called “Cadillac” plans (though with GM in bankruptcy, I think we should start calling them “Mercedes” plans – or even “Hyundai” plans), would pay taxes on benefits. That might *might* pass muster in Congress. It just won’t make people with those health care benefits happy.
But at least it will solve the health care budget problems.
Oh wait… it actually won’t solve the health care budget programs. According to Sen. Max Baucus (D-MT), the hole in the budget after making other accommodations is a whopping $320 billion. Taxing pricey health care benefits would only put a mere $90 billion dent in that number over 10 years. That leaves nearly a quarter of a trillion dollars still left – just for health care. Not for education. Not for military. Not for infrastructure improvements.
And since I’m fairly certain that we’ve become immune to how big these budget numbers are, I’m going to write them out.
The hole in the budget for health care is $320,000,000,000. After raising taxes on health care benefits, it’s still $230,000,000,000.
All of those zeros are worrying: they have to come from somewhere.
And where do you think they’re coming from? Hmm.,,
Senator Max Baucus (D-MT) isn’t a fan of limiting the itemized deductions for higher wage earners. I’ve said before that I’m not a fan of the idea and I don’t think it will pass in Congress.
But Baucus has another idea. He’s asked Treasury Secretary Geithner whether the Obama administration would consider changing the current tax preferred treatment given to employees who receive health care insurance through their employers. Under the current law, the portion of health insurance premiums paid by the employer is treated as tax free income to employees. That exclusion is equal to $246 billion in foregone revenue, reportedly the federal government’s single biggest tax expenditure.
Baucus is not necessarily in favor of eliminating the plan. He said:
I think that tax provision should be on the table. It’s currently too aggressive. I do not favor eliminating it. But I do think it needs to be trimmed, limited.
Trimmed? Limited? I thought we were supposed to be looking for ways to make health care more affordable for Americans.
To be honest, as a tax policy, I do think the rule is flawed. It doesn’t help the self-employed or those folks who have to pay out of pocket because they don’t receive health care as a perk. It’s only good for employees who receive health care as a benefit from their employers. So yes, it’s a big chunk of foregone revenue for a limited segment of the population.
But to consider increasing taxes on the middle class (cause that’s what you’re doing when you reduce or eliminate those tax benefits) in the midst of a bad economy? I’m just not getting it. How is that helping?
The average cost of insurance for an individual is $4,704 per year. If made taxable, that would increase the tax bill of the middle class by $1200 to $1300. That’s not an insignificant increase.
Of course, Baucus isn’t the first to test these waters. Democrats have proposed similar plans before and Sen. John McCain (R-AZ) offered a variation on the scheme during his presidential run. And I’ll be one of the first to say that I don’t think, from a tax policy perspective, that it’s without merit. But the timing and the implementation so far? They leave a lot to be desired.
I guess Baucus can be glad that he didn’t ask me what I thought…
Obama said during his campaign that he would not be in favor of taxing employee health benefits. Nonetheless Geithner said this week that the idea wasn’t off the table.
What do you think? Is this the way out of our current health care mess?
