Taxing Health Insurance Premiums and Subsidizing Health Care Providers
Dean Baker, the economist, in Truthout:
As a card-carrying economist, I don’t like the unlimited tax deduction for health insurance premiums. It is regressive and just plain bad policy.
Low- and moderate-income people are both less likely to have employer-provided health insurance, and benefit much less from the tax deduction if they do. Most of these families will have no income tax liability. So, if they get a $12,000 employer provided plan, their tax savings will only be on the 15.4 percent payroll tax liability, which would come to $1,850 in this case.
By contrast, if a family earns $250,000, it is in the 33 percent tax bracket. If this family gets a $25,000 policy from an employer, the government is effectively paying almost half the tab, or $12,100. In this case, the government ends up paying almost seven times as much to subsidize the health care of a high-income family as it does for a moderate-income family. That policy is hard to justify.
Of course the vast majority of the people who benefit from the tax deductibility of employer-provided health insurance do not earn more than $250,000. Most are solidly middle-class, many of them are union members.
The unions have taken a strong position against efforts to place a cap on the size of the tax deduction as a way to help finance health care reform. Many union contracts provide for plans that would likely fall over the cap. As a result many middle-class union members could be looking at tax hikes in the neighborhood of a $1,000 a year if caps were imposed.
Abstractly, imposing a cap on premiums would be reasonable policy. After all, why should the government pay more to subsidize the insurance of a relatively well-paid schoolteacher than the custodian who cleans the classroom?
But this is not an abstract issue. It is a concrete question of who will pay more. For some reason, when it comes to sacrifice, union workers always seem to be at the top of the economists’ agenda.
That was certainly the case with trade policy, where …
