Tuesday, May 12, 2009
Taxing employer-provided health benefits
One of the proposals bouncing around Capitol Hill is to limit the tax-free status of the health benefits that employers provide to employees. Senator Max Baucus (D-MT) is at the forefront of these discussions:
"Baucus suggested that the benefit could be limited by taxing health insurance provided to high-income individuals, although he did not specify at what income levels. He also said that plans offering rich benefits — for example, no co-payments or deductibles — might be taxed once their value exceeded a yet-to-be-determined threshold."Of course, that raises the always interesting question of what constitutes a "high-income individual." It is hard to see how it would be much of a tax revenue generator targeting income levels of $250,000 and up, particularly considering that some part of the employer-provided health benefit would remain exempt from taxation.
There is nothing that I have read thus far that indicates that Congress is considering
Also not on the table are a federal sales levy or a new payroll tax.
There are two paragraphs in the AP article linked above that are particularly interesting:
"Employer-provided health insurance is considered part of workers' compensation, but unlike wages, it is not taxed. The forgone revenue to the federal government amounts to about $250 billion a year.(emphasis added)
Proponents of repealing the benefit say it encourages lavish health insurance plans that only add to waste in the health care system. And they argue that the benefit is unfair, since self-employed people don't get as big a tax break for health care."
The forgone revenue -- now there's a phrase, as if AP was writing, "By donating material a group of local churches instead of selling it to customers, the forgone revenue to TigerHawk Enterprises was $69,000," (that is, it was revenue that ordinarily would have been generated) instead of "Tax receipts would increase by about $250 billion a year if employer-provided health benefits were fully taxed as income at the individual level." A subtle difference in phraseology, perhaps (relating to the connotation of the word "forgone" or "forgo"), but indicative of the notion that all monies potentially belong to the government if it wishes it to be so.
With respect to how lavish health insurance plans...only add to waste in the health care system, it seems to me that there is an argument to be made that if a company wants to pay premiums for a Rolls Royce-type policy for a group of relatively young and healthy employees as a part of the overall effort involved in retaining employees, and few claims are made each year, then the premiums effectively subsidize other parts of the health care system. I was in such a situation in the 1990s.
How is the benefit unfair -- because all employees everywhere must have the same tax effect on their benefits, self-employed or not? I guess maybe that might make sense if the government was otherwise actually providing incentives (and not disincentives) to people to become self-employed. The same ends could be accomplished by lowering the self-employment tax, which can be crushing in certain situations.
UPDATE/CORRECTION: Thanks to a commenter, "limiting the detectability" (whatever that means, but that's what happens when you rush through and accept changes from a mediocre spell checker) corrected to "eliminating the deductibility."
4 Comments:
By 
JPMcT, at
Wed May 13, 07:10:00 AM:
I really enjoy the government logic that allows 5% of this country's citizens to, in effect, pay the way of the other 95% in an effort to restore "fairness".
Our corporation renegotiates its "lavish" health care plan on a yearly basis to find the cheapest, most cost effective plan available.
Most businesses do this.
Perhaps the Congress just presumes we run our businesses the same way they do.
By 
, at
Wed May 13, 10:10:00 AM:
Among other things you said, in an overly long post,
"There is nothing that I have read thus far that indicates that Congress is considering limiting the detectability of employer-paid health care benefits."
From Reuters"Congress is looking closely at capping tax benefits for employer-provided healthcare, an option President Barack Obama and labor unions oppose. Currently employers can deduct the cost of the benefit and employees do not pay income taxes on it."
By Escort81, at
Wed May 13, 11:53:00 AM:
My bad, should be "eliminating the deductibility."
By , at
Wed May 13, 12:39:00 PM:
I waasn't talking about a spelling mistake, I was pointing out an article explicitly talking about Congress considering limiting or eliminating the deductibility of private health insurance premiums.
