Will MN Republicans Support McCain’s Plan to Tax Health Care Benefits ?

As voters enter the voting booth this November, a recent NYTimes / CBS News poll indicate that the top issue will be jobs and the economy. The most salient point that Barack Obama made during his acceptance speech concerned those issues :
OBAMA: Now, I don't believe that Senator McCain doesn't care what's going on in the lives of Americans; I just think he doesn't know.
Why else would he define middle-class as someone making under $5 million a year? How else could he propose hundreds of billions in tax breaks for big corporations and oil companies, but not one penny of tax relief to more than 100 million Americans?
How else could he offer a health care plan that would actually tax people's benefits, or an education plan that would do nothing to help families pay for college, or a plan that would privatize Social Security and gamble your retirement?

That’s right … under the McCain plan, employer-provided health insurance benefits would be taxed as normal income for individual income tax purposes.

While employers would continue to deduct health insurance coverage costs, employees would pay taxes on the fringe benefit. Currently, the tax code provides an exclusion that allows companies to offer health care benefits to employees free from taxation.

That’s a MAJOR TAX INCREASE that is not being portrayed as such.
In August 2007 the U.S. Census Bureau reported that 59.7% of Americans received employment-based health insurance in 2006. Thus, this would be a major change for those employed by employers who provide health insurance benefits and no impact for those companies that do not.

Your employer may have different rates depending upon group history and policy coverage. For a point of reference, the Kaiser Family Foundation and Health Research and Educational Trust report the annual cost of a family health insurance premium in 2006 was $11,480. Essentially under the McCain plan, your taxable income would increase by that amount … and whatever your tax rate (10% to 35%) would be applied. Although the employer has a rate per employee, the insurance expense is probably a group policy expense, so the impact of adding $11,480 to the average worker’s pay will impact lower wage-earners harder … as well as ethnic breakdown. For example, the median household income in 2006 for White Americans was $50,673 (25% tax bracket) while Hispanics were $37,781 and African-Americans were $31,969. (Source : Income, Poverty, and Health Insurance Coverage in the United States, 2006. Current Population Reports, Consumer Income. August 2007).
Simply, the CEO of the company will have the same additional taxable income --- $11,480 health benefit --- as well as the lowest paid worker.

While burdensome to all but the most affluent families, this level of spending can be deemed excessive.

While this tax increase is substantial to the individual, it would provide the Government with some needed revenue. According to the Committee for a Responsible Federal Budget A Fiscal Voter Guide to the 2008 Election report, this plan to eliminate of the tax exclusion for employer provided health insurance could result in adding $201 billion to $274 billion to the Federal Treasury. (Yep, that’s Billion.)

One could look at this as a necessity to pay for the ongoing Iraq and Afghanistan operations or addressing the “borrowing” from Social Security and Medicare fund for other spending programs. Yet the CRFB report also indicates that McCain’s plans to continue the Bush tax cuts which will cost the government $294 billion, and that McCain plans to reduce the Corporate Income Taxes costing the Treasury another $55 to $68 billion. (Yep, that’s Billion.) MORE on reducing Corporate Income Taxes in a future commentary.

The obvious question is, Why does McCain advocate this change ?

Republicans like Dr. Brian Davis believe that there needs to be more competition and less government intervention in healthcare.
IF employees begin to be taxed for health care benefits, employees may be inclined to want to opt out of insurance. With the rising cost that employers have seen in health care costs, they may likely comply. This could lead to the end of the employer-sponsored health care benefit system. In 2007, some 45.7 million Americans — 15.3 percent of the population — were uninsured so that figure could rise substantially as more people just determine that health care insurance is unaffordable.

That may work out good for employers … and possibly for healthy employees, but for the others that have health problems that would be a problem. The percentage of Americans with insurance through a public program increased from 27.0 percent in 2006 to 27.8 percentage in 2007, primarily as a result of gains in coverage through Medicare and Medicaid. IF the employer-sponsored health care benefit system is effectively terminated, that would cause an increase demands for public programs which may result in scaling back Medicaid benefits and eligibility.

Remember McCain said that Bush made "the right call" in vetoing the SCHIP legislation and has repeatedly voted to cut, eliminate, or restrict health insurance coverage for low income children and pregnant mothers.(source) Congresswoman Michele Bachmann (R-06) and Congressman John Kline (R-02) also voted against SCHIP legislation.

When Norm Coleman, Dr. Brian Davis, Dick Day, John Kline, Erik Paulsen, Barb Davis White, Ed Matthews, Michele Bachmann, or Glenn Menze talk about taxes, be sure to ask them if they support McCain’s efforts to tax health care benefits.
Also, as you watch the Republican National Convention, watch for how often "cutting taxes" is discussed and how many times eliminating the health care tax benefit is mentioned.

Tax fairness should not begin with taxing the health care benefits.