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Sunday, January 21, 2007

Bush Proposes Taxing Health Benefits

This is a tax increase - and it's targetted to the middle class. New York Times:

The Census Bureau estimates that 175 million Americans obtain private health insurance through employers, while 27 million people are covered by insurance bought outside the workplace. The rest, with the exception of the 47 million uninsured, are covered through government programs like Medicare and Medicaid and military health care.

Under Mr. Bush's proposal, people buying health insurance on their own would receive a tax break similar to the one that has historically been available to people who receive coverage through their jobs. The plan is tied to the average cost of family health coverage, which is currently $11,500 a year.

It would work like this: The administration would cap the amount of benefits that can remain tax free at $15,000 for a family and $7,500 for an individual. Anyone whose health insurance cost more than that would pay taxes on the difference. For example, a family with coverage costing $16,000 a year would pay taxes on $1,000.

The cap would also be used to establish the amount of the new deduction for people who lack coverage. In this example, a family buying insurance on its own could take a $15,000 deduction — even if the insurance cost less. The cap would rise with some measure of overall inflation, but would not necessarily keep pace with the costs of medical care and health insurance.

A White House official, speaking on condition of anonymity so as not to upstage the president, said, "The vast majority of people with employer-provided coverage will benefit as well."

The question is whether this tax break would be a deduction or a refundable tax credit. For low income, often a deduction doesn't do any good.

Ronald Reagan was successfully able to make grad student stipends taxable. That affected a smaller group of people. I imagine this isn't going over well. Business and Labor are united in opposition.