In a dramatic turnaround from his campaign position last fall, President Obama is reportedly willing to consider taxing employer-provided health care benefits to help finance health care coverage for millions who have none.
The approach would for the first time tap the greatest untaxed revenue source available, potentially good for $132 billion a year.
Politically, most liberals recoil at the idea. So do many among the 60 percent of Americans who have employer-provided health insurance. But it’s the funding method favored by Senate Finance Committee Chairman Max Baucus, D-Mont., and has the support of professor Robert Reich.
Reich finds our current setup lacking in several important ways.
But, face it, it’s become a crazy system. You’re not eligible for these benefits when you and your family are likely to need them most – when you lose your job and your income plummets. And these days, as we’re witnessing, no job is safe. The system also distorts the labor market. It prevents lots of people from changing jobs for fear they’ll lose their health insurance, or won’t get the benefits they do now. And it invites employers to game the system by seeking young, healthy employees who pose low risks of ill health and will therefore keep insurance costs low, while rejecting older ones who are likely to have more costly health needs. The system also encourages employers to try to push married employees onto their spouses’s health insurance plan so that the spouse’s employer bears the cost.
As a matter of equity, liberals, indeed all Americans, should at least be willing to consider taxing employer-provided health benefits. Here’s why.
Recipients of this benefit are mostly upper-income executives, professionals and the highest-paid workers. It can easily bolster a family of four’s yearly income by $14,000-$15,000 — tax free.
Meanwhile, a working couple with a combined income of $52,000, no health care benefits, must go out and buy their health coverage. When they do, they pay with income subject to full taxation.
So, what’s going on — and what has been going on for a half century — is that the federal government in effect subsidizes the well off by not taxing their income in the form of health care benefits. At at the same time, the government fully taxes the income of people not fortunate enough to work for employers who provide health care coverage.
Reich suggests taxing the health-benefit income only of those making $100,000 or more. We think it would be better, if this method is chosen, to start taxing at $120,000 total household income and scaling the tax progressively for those earning at higher levels.
Admittedly, starting at either level would breach Obama’s pledge to not raise taxes on those whose income is less than $250,000.
The likely alternative way to pay for universal health care is to repeal Bush tax cuts that heavily favor the wealthy. That should be done in any case, but won’t be enough to fully fund universal health care.
Congressional Democrats have appeared to waver about even ending all the Bush tax cuts on those making more than $250,000. If that’s so, there’s no way they’re going to vote to boost the marginal tax rate for the wealthiest taxpayers.
Ultimately, if our economy is going to be put on a path toward needed growth and more broadly shared prosperity, we must at long last have universal health care coverage.
Ultimately, too, universal health care will save the working, taxpaying public money overall. Getting there will require some uncomfortable shifts and changes. And for some, one way or another, taxes will be higher.
On close examination, taxing employer-provided health benefits seems the fairer and more effective way to go.
How many ways can I tell you that this won’t fly? It would be putting a burden on small business owners at a time they could least afford it. The republicans would fight this tooth and nail and I’m sure fillibuster any such bill.
I think what’s needed is a type of tax like medicare on everyone. Stop to consider that we pay property taxes to pay for schools even if we have no children. Get rid of the Bush tax cuts for the wealthy would help pay for a bunch of it. Remember that taxes were raised to over 90% during the 1930s. I think the $250K level is more than fair for any threshold right now.
Then there’s the issue of corporate taxes (many that pay no tax) that needs to be addressed.
Demeur, I went back and carefully read my post. Help me out. I can’t find anything in it that would lead you to think taxing employer-provided health benefits for those making $120,000 or more a year would increase costs for small businesses.
Making health care coverage affordable for everyone would actually relieve small businesses that provide benefits of some or all of their burden.
As for Republicans fighting it, they’re going to fight any public-option program that actually helps people of modest means afford coverage. The only thing they’re likely to let pass without an ugly fight is a window-dressing program that only gives the appearance of doing something.
Being in favor of class warfare, I’ve got no problem with the tax rates on corporations and individuals being jacked up through the roof. Our economy seemed to grow when the rates were higher in the 50s, The Greatest Decade In The History Of White People, goshdarnit.
Look, America, stuff costs money, so suck it up (especially you that can afford it) and realize that in the long run, a healthier America means less money spent on, duh, health care!
Randal, a little class warfare in pursuit of basic fairness for all — for a big change — is no vice. Ironically, it will benefit everyone in the end, the very well off included.
As far as how we’ll pay for health coverage reform, it’s gonna have to be an “all of the above” approach. I’ve been against taxing employer-provided health benefits, but I think it might be a necessary evil. It won’t be easy to raise $2 trillion or whatever this is supposed to cost, so nothing is off the table.
Reversing Dumbya’s tax cuts, and raising taxes on booze and junk food, will be helpful. But maybe it really is time to include a tax on employer-paid health coverage too.
Tom, your willingness to be flexible is exactly what’s needed now.
Here’s the real problem. We have an ageing population and with unemployment continuing there’s less premium monies coming in to pay for the system. I’ve throw out my two cents on a recent post.
OK, I get your point. I do think the potential revenues are still there, even with our relatively high unemployment right now, though.