Tax Rascal

The Candidates, Compared: Health Care Taxes

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The Candidates, Compared: Health Care Taxes

As part of their Presidential campaigns, Barack Obama and John McCain have both proposed serious revisions to health care taxes. Since health care is a large and growing expense, and one subject to fairly Byzantine tax treatment, it’s interesting to consider how each candidate’s proposals will affect the average taxpayer.

Obama’s proposal calls for grafting some new systems onto our existing health care system: in addition to employer-provided plans, he would offer extra guarantees for children. He’d also create a Federal insurance program offering a minimal level of coverage, and require that all health plans meet the same minimum criteria as the national option. This proposal would also require insurers to either provide insurance for their employees or pay into a general insurance fund.

From a tax standpoint, Obama’s plan is to finance this with higher taxes on the wealthiest tax payers, and lower taxes overall. It might work — though there’s a significant risk: if the problem with the health care business is too much money being spent, then a plan requiring more money to be spent won’t exactly improve matters. And surely taxing doctors, surgeons, anesthesiologists, and other highly-paid medical specialists won’t do much to defray those costs. Taxpayers could find that although they’re more likely to get medical care, it’s more expensive than they expected.

John McCain’s tax plan is a bit more drastic: he intends to eliminate the link between health insurance and employment by getting rid of the tax deductability of employee health insurance. In exchange for this, some tax payers would get a credit they could apply to new insurance, and all of them would be able to buy insurance from out-of-state providers.

McCain’s plan focuses less on assuring a minimum level of care, and more on getting rid of the accumulated cruft in our medical system. Simply by adjusting the tax code, this plan would turn insurance into a personal matter, rather than something decided by an employer. On the other hand, the tax credit would be an expensive way to let people adjust to the new plan.

Analyzing these plans is dicey; they rely on lots of unknowns and unstated assumptions, and could easily be rewritten beyond recognition by the time they’re enacted into law (the current health care system is certainly not the result of careful planning — a lot of it is due to unpredictable reactions between taxes and regulations). For the average taxpayer, the Obama plan will offer short-term relief coupled with long-term uncertainty, and a continuation of some fairly odd and counterproductive tax policies. The McCain plan, by contrast, might make things worse for most taxpayers in the short term (they may have to select a new insurer, and may pay more than they’re used to, in addition to paying for the tax credit — and this will be only minimally cushioned by McCain’s tax cuts, which are weighted towards the top bracket). But in the long run, the McCain plan seems likely to simplify the system, and to make further reforms more practical.

Of course, the details of each plan will make all the difference. Executed right, Obama’s plan could solve the health-care/employment match by offering cheaper plans that make them uneconomical, and McCain’s plan could very well entrench some new and unpredictable rules. Either way, the American health care system is sure to remind us of the inevitability of death, taxes, and intractably confusing politics.

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