McCain Is the Radical on Health Reform
Wednesday, 30July, 2008
If you listen only to presidential campaign rhetoric, you might conclude that Hillary Clinton and Barack Obama proposed bold new changes for our health-care system, while John McCain is offering only small improvements. If so, you are in for a surprise. Most health-policy analysts believe that Mr. McCain is proposing the most fundamental health-care reform.
Right now the federal government encourages private health insurance primarily through the tax system -- handing out more than $200 billion in tax subsidies every year. Mr. Obama would leave this system largely intact. Mr. McCain would completely replace it with a fairer, more efficient system with a much better chance of insuring the uninsured and controlling health costs at the same time.
Under the current system, every dollar in health-insurance premiums paid by an employer is excluded from employee income and payroll taxes. Take an employee in the 25% income-tax bracket. Throw in state and local income taxes, add the 15.3% (FICA) payroll tax, and the tax exclusion for a middle-income family is worth almost 50 cents on the dollar. To make things a little better, employees can often pay their share of the premium with pretax dollars as well.
But this system is extremely arbitrary. There is virtually no tax relief for people who work for the 40% of employers who do not provide insurance, for part-time workers or people not in the labor market, or for anyone else who for any reason must buy his own insurance. The self-employed get a slightly better deal: They can deduct 100% of their premiums, but they get no relief from the payroll tax.
According to the Lewin Group, a private health-care consulting firm, families earning $100,000 a year get four times as much tax relief as families earning $25,000. In other words, the biggest subsidy goes to those who least need it, and who probably would have purchased insurance anyway.
The system is also wasteful. People can always lower their taxes by spending more on health insurance, and there is no limit to how bloated a health plan can be.
Under the McCain plan, no longer would employers be able to buy insurance with pretax dollars. These payments would be taxable to the employee, just like wages. However, every individual would get a $2,500 credit (and every family would get $5,000) to be applied dollar-for-dollar against taxes owed.
The McCain plan does not raise taxes, nor does it lower them. Instead, it takes the existing system of tax subsidies and treats everyone alike, regardless of income or job status. All health insurance would be sold on a level playing field under the tax law, regardless of how it is purchased.
The impact would be enormous. For the first time, low- and moderate-income families would get just as much tax relief as the very rich when they purchase health insurance. People who must purchase their own insurance would get just as much tax relief as those who obtain it through an employer. Whereas Mr. Obama would continue the current practice of giving the vast bulk of federal help to the rich (through tax subsidies) and the poor (through spending programs), the McCain tax credit would give the most new tax relief to the middle class...
References : http://online.wsj.com |
