It is amazing to me that Obama campaign has let things go this far without pointing out that McCain--who opposes the energy bill because it would increase taxes on oil companies--is actually proposing a tax increase on health care benefits for American workers. But that is precisely what the Senator from Arizona is doing.Ezra Klein goes further:
This is a tremendous tax increase, to the tune of $3.6 trillion over 10 years.Although he goes on to qualify that statement, it is not a fair critique by any stretch of imagination.
I don't like McCain's vision for health care and his non-reform "reform". I think he wants to take it in the wrong direction and will only make the problems worse. But this tax proposal is actually not bad at all. It would remove a major tax distortion and most people would be better-off (well, sort of - as taxpayers, they'd have to pay it back eventually).
Currently, employer-paid health insurance premiums are not counted as taxable income to employees, but are fully deductible as expense to the employer. In effect, the government subsidizes the premiums at the employees' marginal income tax rates. And because income tax rates increase with income, high earners get a bigger subsidy than low earners.
This is unfair to low earners - it reduces the progressivity of the tax code in a non-transparent way. But it also distorts the health insurance and labor markets, because people who pay for their own insurance get no subsidy. That makes the current system unfair to the self-employed and to workers whose employers don't offer a health benefit. It also discourages entrepreneurship by making self-employment more expensive.
McCain's plan would treat employer-paid health insurance premiums as cash income for tax purposes, but would offset the added tax cost with a refundable tax credit of $2,500 per year to individuals and $5,000 to families. "Refundable" means you get the full amount even if your total federal income tax for the year is less than that - the government writes a check to everybody who has health insurance. If you have family coverage and your employer pays $8,824 per year for it (the national average), counting it as income will increase your tax from $882 (if you are in the 10% bracket) to $3,088 (if you are in the top, 35%, bracket), but with the refund, your tax will decrease by $1,912 to $4,118. (If Social Security taxes also apply, the numbers are less favorable, especially for lower earners, but it is still a net gain for the employee in each case.) The only way you lose is if you have a high income and high premiums (which means you live in an expensive area and your employer offers good benefits).
That actually looks like a big tax break, and it is: the Tax Policy Center estimated it would increase the deficit (or cost taxpayers) 1.3 trillion dollars over the next 10 years. Free money isn't cheap.
It is fair to criticize McCain's plan for burning another hole in the budget. It is also fair to point out that it is a tax change, not health care reform. It generally won't help the uninsured. And, perhaps most importantly, some people will lose in indirect ways. Employers will have no incentive to offer health benefits and some will surely choose to compete for workers by increasing wages and dropping health insurance. That means some people will lose their employer-provided insurance and some of those will get lost in the vagaries of the individual insurance market. The plan doesn't seem to provide adequate ways to deal with such risks.
It is even fair to point out that it is another instance of "more of the same" because Bush has been proposing a similar plan for the last two years. (By the way, it hasn't passed; why would McCain expect his plan to pass now that the Democrats are almost sure to fortify their control of Congress?)
But it is not fair to call it a tax increase.