NCPA - National Center for Policy Analysis


September 5, 2007

Nearly all Republicans agree that giving individuals the same tax benefits that businesses now have for health care is the key to building a more competitive and equitable insurance market.  The dispute is about how to do it, says the Wall Street Journal.

One camp, led by President Bush and Arizona's Jon Kyl in the Senate, supports a "standard deduction" along the lines unveiled by the White House earlier this year:

  • President Bush's proposal would replace the unlimited health-care tax deduction for employers with a $15,000 deduction for a family, or $7,500 for an individual.
  • The deduction would apply both against the income and payroll tax, and would go a long way toward creating a more affordable private insurance market.
  • An estimated 80 percent of the 160 million Americans who are now insured by their employers would get a net tax cut.

On the other side are several senators, led by South Carolina's Jim DeMint and Oklahoma's Tom Coburn, who agree on ending employer subsidies but want to give individuals a "refundable" tax credit:

  • North Carolina Sen. Richard Burr has proposed a tax credit of $5,400 per family and $2,160 per individual.
  • Because it's "refundable," the tax credit would also go to individuals who pay no taxes at all -- essentially in the form of a government handout to buy individual insurance.

The tax deduction has the better argument, especially as a matter of tax policy, says the Journal.  Tax credit proponents tout their reform as "budget neutral," meaning that it neither raises nor lowers overall federal revenues.  But that masks the enormous shift in the tax burden that it would require, including a big tax increase on large portions of the middle class.

Source: Editorial, "Health Care and Taxes," Wall Street Journal, September 5, 2007.

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