This morning on Stephanopoulos's show, McCain was asked about the tax implications of his health care plan. Stephanopoulos said that "for the first time ever you would tax health benefits by taking away the deduction that employers now get to provide health benefits," which is an unambiguously true statement. Indeed, McCain's next word was "right," though I don't think he meant it as an affirmative answer to the charge. But nor did he deny it. "My plan gives $5,000 refundable tax credit for every family in America. For [a] huge number of small business people [that's a] great step forward because they don't provide health insurance for their employees. They can't and they can't afford it. This will actually by giving the, the worker and the family tax credits, they'll be able to go out and then select their own health care and insurance and we will be able to then make sure that they're able to get the lowest cost, most available, most effective health insurance." Some of his rejoinder is true, and some of it is nonsense. But what's most relevant is what he refuses to say: The central aspect of his plan is not the tax credit, but the tax increase. And because this is confusing, McCain's spin is convincing some observers. The campaign is essentially taking advantage of confusion between a tax plan and a health care plan with a tax mechanism. The two are not the same. Raising taxes by $3.6 trillion on the employer-based health insurance market -- which McCain does, and which his campaign has been extremely clear about doing -- and then giving an equivalent amount of money in subsidies to the individual health insurance market is not a one-to-one trade. It is not like raising taxes on the rich and cutting them on the poor by equivalent amounts. It's more like raising taxes on solar energy and then putting the subsidies into oil. He is taxing one thing so people use less of it, and subsidizing another so people use more. The issue at hand is not total revenues but the effect on the market. In this, McCain's tax hike and his tax credit are better understood as two separate policies. The first policy is the tax hike. Currently, employer health benefits are tax deductible, as they have been since the Second World War. This amounts to a huge subsidy for employer-based health insurance and is the reason why the workplace is at the center of our health insurance system. Eliminating that subsidy will make employer-based health insurance $3.6 trillion more expensive. The effects of that on the health insurance market will be felt in full: Huge numbers of employers will stop offering such insurance. Many more will sharply raise the worker contribution, or drastically cut benefits. In Health Affairs, Thomas Buchmueller, Sherry A. Glied, Anne Royalty, and Katherine Swartz estimate that a full 20 million Americans will lose their current coverage as a result of the tax hike. 20 million. And they say that's a low estimate: "The effect could be much larger...these estimates account only for the price effect of eliminating the tax preference; they do not account for the number of low-wage workers who might lose employer-sponsored insurance when employers are no longer bound by the nondiscrimination rules, nor do they capture the impact of breaking up existing risk pools."
