The tax debate continues. Not a lot of new information from this recent OpEd from the WSJ, but I like Marty’s perspective (I have soft spot for my former Ec10 teacher). His basic argument is as follows:
John McCain’s tax policies are designed to create jobs, increase wages and allow all Americans — especially those in the hard-pressed middle class — to keep more of what they earn. His plan achieves these goals in three important ways.
First, he proposes a package of tax incentives that will create jobs and raise earnings by inducing firms to invest more in the U.S. Second, he is strongly committed to blocking any increase in tax rates while doubling the personal exemptions for families with children, which will reduce the tax burden on working Americans. Third, he proposes a new, refundable tax credit that will increase health-care coverage, reduce the cost of health care, and provide more funds for families and individuals to purchase health care.
None of this is really new, although a bit uneven for a guy who admits that Social Security is broken and generally has good deficit fighting credentials. However, I found particularly interesting the argument in favor of McCain’s healthcare tax rebate. I LOVE the idea that we might be able to separate our employement from our healthcare insurance — I believe this is one of the largest structural problems in America’s labor markets and provides a significant smokescreen behind which healthcare costs increase astronomically each year, unbeknownst to their consumers or their providers. See Marty’s analysis below:
Mr. McCain’s overall tax policy will also expand health-insurance coverage, and make health care more efficient. Most taxpayers will also pay less in tax. Here’s how it will work. His plan includes a refundable tax credit of $2,500 for single individuals and $5,000 for couples, if they receive a qualifying health-care policy from an employer (one that includes adequate coverage against large medical bills), or buy a qualifying policy on their own. The credit will replace the current tax rule, which excludes employer payments for health insurance from employees’ taxable incomes.
This tax credit will be available to everyone, including the self-employed and the employees of businesses that do not provide health insurance. Thus it will lead to a major expansion of health-insurance coverage. The tax credit will of course be available to people who are between jobs, or have retired before they’re eligible for Medicare.
Since any part of the credit not used to pay for insurance could be invested in a health savings account, individuals will have an incentive to choose less costly health-insurance policies. This will improve the efficiency of health care, to everyone’s benefit.
Importantly, the tax credit will be a clear gain for most employees. Consider a married taxpayer whose employer now pays $10,000 for a health-insurance policy. Ending the exclusion will raise that individual’s taxable income by $10,000 — but the $5,000 tax credit will exceed the extra tax liability whether the marginal tax rate that individual pays is 10% or 35% or anywhere in between. Indeed, the lower the taxpayer’s income, the more of the credit that will be available to pay for health care that’s not reimbursed by insurance.
The devil is, of course, in implementation, and this tax policy has a chance of being a serious bear. But if we could implement it smoothly…. wow, that would be awesome. Imagine if you actually cared what your health insurance cost. Or your eye exams.
