NCPA - National Center for Policy Analysis


May 29, 2009

Democrats have spent years arguing that proposals to equalize the tax treatment of health insurance are an outrage against the American people.  Workers pay no income or payroll taxes on the value of job-based plans, but the same hand isn't extended to individuals who must buy coverage on their own.  Now Democrats need the money to finance $1.2 trillion or more for their new health insurance entitlement, says the Wall Street Journal. 

Last week Senate Finance Chairman Max Baucus released his revenue "policy options" and high on the list is . . . taxing health benefits.  The tax exclusion is such a big revenue prize because Baucus is scrubbing every other tax nook and cranny and only coming up with rounding errors.  A sampler:

  • Impose an excise tax on hard alcohol, beer and some kinds of wine (that would be in addition to a sin tax on beverages sweetened with sugar or high-fructose corn syrup, such as soda); Baucus doesn't offer revenue estimates, though the Congressional Budget Office says a $16 per proof gallon alcohol tax might raise $60 billion over 10 years, and another $50.4 billion at three cents per 12 ounces of sugary drink.
  • End or limit the tax-exempt status of charitable hospitals, which only costs currently a mere $6 billion a year.
  • Make college students in work-study programs subject to the payroll tax; also targeted are medical residents, perhaps on the principle that they'll one day be "rich" doctors (CBO has no score on these).
  • Reducing Medicare reimbursement rates for supposedly "over valued physician services," such as diagnostic imaging; CBO says that requiring doctors to get prior clearance could save $1 billion in 10 years.
  • For individuals with high-deductible insurance plans, contributions to health savings accounts would no longer be tax deductible; that would penalize patients who choose plans that encourage them to be informed consumers (CBO says that banning HSA payments entirely would yield all of $10 billion).

By contrast, the employer-based exclusion offers a huge money pot -- an estimated $226 billion in 2008.  To finance government-run health care, liberals will have to tax everything in sight, and that includes your current health insurance, says the Journal.

Source: Editorial, "Taxing Health Care; Obama and Democrats owe John McCain an apology," Wall Street Journal, May 29, 2009.

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