NCPA - National Center for Policy Analysis


October 1, 2008

Sen. John McCain's(R-Ariz.) health care plan has been variously described as a huge tax cut, as having no net impact on tax collections and, for some, as a tax increase.  Part of the confusion stems from an important but somewhat obscure tax provision of his plan, says the Wall Street Journal.

Here is how the McCain plan works: Under current law, Americans get a tax break if they get health insurance through an employer because the value of those health benefits are not subject to taxes, says the Journal:

  • The plan would give people a refundable tax credit ($2,500 for individuals; $5,000 for families) to buy insurance through work or on their own.
  • In exchange, the value of health benefits would be subject to income taxes.
  • A similar proposal put forward by President Bush last year also subjected health benefits to payroll taxes -- and when McCain rolled out his plan, many suspected that his plan did too.
  • The Bush plan was revenue neutral, meaning that tax collections would stay about the same in the end, and McCain advisers said he was, too.

At some point, though, the McCain campaign decided that health benefits should remain exempt from payroll taxes.  That meant that there would still be an incentive to provide health insurance on the job.  But it came with a price: $1.3 trillion over 10 years.

The good news is that that is a tax cut, and most Americans will pay less for insurance.  The bad news is that McCain has not specified how he would pay for it.  It would come on top of a raft of other tax cuts that he has not specified how he'll pay for, says the Journal.

Source: Laura Meckler, "The Shifting Tax Implications of McCain's Health Plan," Wall Street Journal, September 28, 2008.

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