I promised to comment on Bush’s proposals for tax reform following his State of the Union address (full text link here).
Well… there’s not much to say. Bush punted on most of the economy issues, saying that he’d talk about them next week. And his health care based tax reform? I don’t anticipate that it will pass Congress but here’s the scoop anyway.
The idea is to allow health care standard deductions of $7500 ($15,000 for married couples) on individual income tax returns for those who have health care insurance. If an employer provides your health care insurance, the amount of the health care plan would be includable in your income (though not subject to payroll taxes), and then you would be allowed the standard deduction which should, the theory goes, either result in a wash to you or a bit of a tax savings (Bush uses the example of a $4,500 tax savings for a family of four earning $60,000 annually). And if you are a self-employed person, you are traditionally subject to the floors and ceilings on Schedule A – this would take that barrier away, producing a tax savings. Tax savings is good, right?
Well, here are the criticisms of the plan (some of them are mine, some of them are the concerns of political gurus):
- The plan might serve as an incentive for employers to not provide health insurance plans to employees. If that happens, health care plans purchased individually are far more expensive than group plans (sometimes 2 or 3 times), which might result in costs that exceed the deduction.
- The plan might cause employers or employees to choose a less expensive plan than previously offered in order to remain below the deduction, thus reducing the overall “choice” factor.
- The plan would not provide a tax savings lower-income families who traditionally do not pay additional taxes (meaning that the extra deduction would be lost).
- The plan would not make health care plans more affordable for lower income families or those who are currently uninsured (in fact, the fear is that health care plans would become more expensive).
What do you think?
