Subsidizing the Wealthy

TW: This piece frames how current employee based health care for better or worse treats any health care programs as tax deductible expenses. There are no caps on the tax shelter hence the tax deductions are flat and not graduated to reflect the personal wealth of the employees or the extravagance of the individual health plan.

McCain proposed eliminating or greatly reducing the tax deductions within employee based plans. Dems oppose this approach because relatively speaking unionized workers have strong employee based care and would not be interested in having them taxed. One sees almost no Republicans pushing the concept either because well it would be an implied tax increase and there really is no constituency for tax increases on the working poor and middle-class.

There are proposals within the current health care reform though to cap the deductions for the more extravagant employee health care programs, thereby introducing some measure of graduation.

Personally I would make health care (and mortgage interest) expenses no more deductible than any other expense which is to say not deductible.

From Matt Taibbi's blog:
" 'The debate over the merits of taxing high-cost, excessively generous insurance plans has highlighted Goldman Sachs’s plan as an example. Goldman’s 400 managing directors reportedly receive an average of $40,543 in employer-provided health insurance annually. What has received less attention is how much of the cost the federal government pays. This compensation is provided tax-free. The same result would occur if the compensation were included as income and the government sent each Goldman managing director a check for $14,777 each year.'

This is from a report by the Center on Budget and Policy Priorities. It’s an interesting take on the health-care bill. I’m not sure about taxing insurance plans — I’ve seen research that argues somewhat convincingly that it’s a bad idea — but this is also worth pointing out.

The report goes on:
'For comparison, consider an illustrative family of three in which the father earns $30,000 as an independent contractor for a small plumbing company and the mother earns $25,000 from a small retailer. Neither small business provides health benefits. The couple has a daughter in second grade at the local public school and pays $100 a week for child care after school and during the summer. The family lives in a modest home and pays $1,000 a month in rent and $250 in utilities. It owes $2,312 in federal income taxes, $6,502 in Social Security and Medicare taxes, and $1,350 in state income taxes. It has two cars with payments of $300 a month each, and pays $2,000 a year in car insurance and $1,000 a year for gasoline. It spends $150 a week on groceries. The couple has avoided accruing any credit card debt, but they have no saving for retirement and no life insurance…

Right now, the federal government pays $14,777 to provide health insurance for each of Goldman Sachs’s managing directors and pays nothing to provide health insurance for this middle-income family. The Administration and Congress face a clear choice: can we modestly reduce the extremely generous government subsidies provided to the Goldman bankers and others similarly situated to help pay for a subsidy worth a fraction of that amount to families of modest means?'..."