Democrats should be ashamed of the short shrift they are giving President Bush’s health proposals. They should embrace his proposal that we equalize tax treatment of health insurance spending.
The current system is inequitable and economically inefficient. Liberal and conservative analysts alike have criticized it for decades. It cries out for reform.
The president made a proposal. If the Democrats don’t like its details, they can introduce changes. To simply ignore his proposals is a disservice to the nation.
Currently, if your employer provides health insurance, the cost of that insurance is excluded from federal income taxation.
If you are self-employed or your employer does not provide insurance, you get little or no reduction in taxes for buying your own coverage.
Employers providing insurance tend to be large organizations, profit and nonprofit, private or government. Covered employees, on average, have higher earnings and more education than U.S. workers as a whole.
Excluding insurance benefits from taxation costs the U.S. treasury over $200 billion per year. That is an enormous sum and it benefits higher income and better-educated households disproportionately. This is unjust. Moreover, it induces economic distortions that make our economy less productive.
There are several ways one could eliminate this unfair discrimination. Bush proposed ending the blanket exclusion of all employer insurance costs. Instead, he proposed a standard deduction for all taxpayers, $7,500 for individuals and $15,000 for households.
Some Democrats oppose his proposal because “it won’t solve the nation’s health-care problems.” Of course it won’t. No single measure will. But it would be a meaningful step in the right direction.
Others note that a standard deduction confers a greater implicit subsidy to those in high marginal tax brackets than it does to those with lower-income in lower brackets.
Of course it does, but so does the current system. So does allowing deduction of mortgage interest and charitable contributions. That has not led Democrats to oppose these provisions of the tax code.
It is simple to eliminate that inequity by making it a credit against tax owed that is the same dollar amount regardless of income.
Some also complain that the proposed brackets are too low, that a few households getting expensive coverage will pay more taxes and that rapidly rising medical costs will outstrip these brackets even if tied to the Consumer Price Index.
Fine, set the brackets higher. Index them to some measure of medical costs instead of the CPI. Or, let Congress take responsibility and raise the brackets from time to time, as it did with Social Security benefits for a third of a century.
The president put a ball in Congress’s court on an important issue. They should keep it in play. Any refusal to do so is a bad omen for broader reform on health or any other issue.
© 2007 Edward Lotterman
Chanarambie Consulting, Inc.