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 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?
I would go along with this IF it were also mandated that employers provide “employee + 1” coverage, for married employees with no children. I’ve had it up to here ^ with employer health plans that only offer single or “family” coverage, where the latter requires you to pay for coverage for kids you don’t have — subsidizing other insureds.
Tell them to take it off the table. Can’t afford what I have now.
AND I’m sick of paying higher rates because I smoke and the 600 lb lady accross from me is stuffing her face with bacon and doughnuts and gets better coverage for less.
A way out of our current health care mess? I wish this one measure (or any one measure for that matter) would solve the problem. So no, it’s not a way out — however, I do think that it should be an issue left on the table for consideration, in perhaps a modified form.
I pay over $6000 a year for a policy for my family that has a $250 deductible per MEMBER on prescriptions. If the amount was included in my income, my Federal taxes would have been about $1500 more added to what I already owe this year…this is a HORRIBLE idea…
If paying with post tax dollars, this amount falls under the 7.5% AGI used when determining medical write offs on schedule A…
Making matters worse, WE HARDLY WENT TO THE DOCTOR THIS YEAR…i know our policy paid much less than what me and my employer paid for the policy…
Seems to me, the wrong side is being asked to make changes…
I am self employed and hired my wife as an employee so that I could deduct the full cost of health insurance. Even with this, I can only afford a very high deductible plan. Although I am not a fan of more taxes, taxing health insurance might get more people aware of its high costs. It does seem inequitable that people getting a top notch health plan that may also include optical and dental do not have to include that as income and the rest of us can only deduct a portion of the cost if it gets above a certain minimum. This tax may also make more people to support a one payer system ot the type much of the industrial world already has. Certainly the high cost of health insurance is a big drain on the economy and making our country less competitive.
The fundamental problem with the system is the taxpayer inherently will bear the burden regardless of the solution…I was thinking that perhaps it would be wiser to tax food products that contain so many chemicals and trans fats, etc that are bad for consumption and are known health risks in an effort to attack the problem from a different standpoint…if we are healthier because we eat healthier, in theory, it will eventually create less need on an overburdened health system, quite possibly lowering prices of health care…then I thought…”wow…all the food companies would do is raise prices and the consumers would pay anyway…”
This is another example of how remote politicians are from reality. The tax code can be skewed for large corporations in many ways (said to maintain their profitabilty while reducing the US workforce), but going after tax code benefits for the working folks is “not fair” (as my daughter says) especially when so many folks are struggling to keep their finances in reality terms.
As a retiree, my health premiums are no bargain. My wife and I have health care, but my former employer (DuPont) has made it clear that using it has extremely dangerous risks. I am not the only one experiencing this, and I suspect other companies do or are considering simialr steps.
The tax code must be simplified, and across the board. Just think if it were simplified, a good portion of the government would dissipate (IRS). Wonder how much that would save the government (and taxpayers).
Affordable quality health care should be affordable to all. I place that right below that no child in America should go to bed hungry.
Until Congress and the President really get serious about improving the health of our country, same old gets same.
By the way, as my daughter continues her journey through life as an adult and mom to three, she has encountered more of “it’s not fair”. That is part of life, and she has come to appreciate the challenges it brings. I have to smile at some of her comments, as I recall her much younger days. But Dad is proud.
The real key is getting employers out of the health insurance business. As long as the cost is borne by ‘someone else’ consumers have no incentive to spend wisely – we need educated health care consumers who make wise choices, that will never happen until they pay the bill themselves. I completely disagree with mandating the ‘EE plus 1’ coverage though – I know all the EE’s with families whine, but it’s an incredibly generous benefit given to some EE’s solely because they have a family, not a good way to distribute comp in my opinion.
Hi Tax Geek: if my Employer gave me what he pays for medical in extra salary, and I could pay with pretax dollars that are eventually taken off of my AGI, then I agree whole heartedly…as it stands, for my family policy, I already pay more than my employer contributes…
The idea of giving benefits as part of an employment package comes form employers trying to entice people to work for them. Believe me, when I lose over $500 a month out of my check towards health insurance, I fully understand the cost…
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