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?
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