SHOULD EMPLOYER-BASED HEALTH CARE BE TAX DEDUCTIBLE?

They say that an important fact needs a striking number. So here's a striking number: $1.7 trillion. That's what people on the Hill are telling me they think health care reform will cost over 10 years. It's a tremendous sum. Larger by far than anything the candidates admitted during the campaign. Larger by far than anything anyone has explained how to pay for. The public plan gets all the attention, and it's important. But if we can't pay for the underlying reform, there's nowhere to even put a public plan.

Worryingly, even without sufficient financing on the table, there's a growing effort to take a major source of financing off the table. The big pot of money in health care reform is the employer tax exclusion. Right now, health care benefits that come through your employer are not taxable. That's a huge amount of lost revenue. Around $1.5 trillion over 10 years. It's also a particularly galling tax quirk. It distorts the health insurance market by routing it through your employer. It wildly disadvantages the self-employed and the uninsured. In general, the workers who receive it are richer than other workers. Capping it is a progressive way to pay for health reform.

But in recent weeks, there's been increased agitation among unions to convince Congress that it shouldn't cap the employer tax exclusion. The Health Care for America Now coalition has come out against touching the exclusion. One problem: That's the most obvious pot of money. Eliminating it would nearly pay for health reform. Capping it would probably bring in about $500 billion. But it would mean that workers with health benefits above the cap pay more in taxes.

The argument has been that some of those workers are not richer. Some of them are union workers with good benefits. Others are older workers, or workers for small companies. Elise Gould, a health care wonk over at EPI, produced a paper showing who these workers are. It's true, she finds, that capping the deduction would prove progressive. But she also finds that it would disproportionately impact firms with older workers and firms with fewer than 10 people.

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