The New York Times reports that the Obama administration is open to the idea of taxing some employee health insurance benefits.
The Times continues by noting that such a tax might create some political difficulties for the president, since he ran campaign commercials criticizing his Republican opponent John McCain for proposing exactly the same thing.
Of course, there was one teeny, weenie little difference: McCain also proposed a $5,000 per-family refundable tax credit intended to offset the increase in taxable income. The Obama administration apparently would use the increased tax revenue to pay for its health care reform goal of providing universal coverage.
The current tax break for employer-provided coverage is unlimited; every penny the employer spends on coverage is excluded from an employee’s income.
That’s a huge tax benefit for highly paid executives, who tend to get very rich benefits. But the other group that disproportionately benefits from the employee exclusion is union members, because many of them tend to get very comprehensive (for their income level), and therefore expensive, health coverage. Not surprisingly, the unions adamantly oppose the proposal.
Now, to be fair, Senator Max Baucus (D-Mont.), the chairman of the Senate Finance Committee, seems to be the one driving the discussion, with the Obama team willing to listen.
And Baucus isn’t the first to conclude it’s time to cap the current unlimited tax exclusion. A few years ago President George W. Bush proposed a $7,500 standard deduction for an individual ($15,000 for a family) that would have capped the unlimited tax break. But we’re having a little trouble remembering a groundswell of Democratic support for the idea.
The political problem is that capping the tax exclusion is, in essence, a tax increase for those with the most comprehensive and expensive coverage. Of course, to the extent that increase hits higher-income folks, the proposal may actually be appealing to this administration.
If President Obama decides to put the tax exclusion, or at least part of it, on the table, that’s an important policy debate worth having.
We just wish he had signaled his willingness to put the issue on the table when he was a candidate, instead of accusing his opponent of raising taxes on working Americans, and then as president considering the same tax increase—without the accompanying tax cut.