Jason Furman and Austan Goolsbee write:
As even Sen. McCain’s advisers have acknowledged, his health-care plan
would impose a $3.6 trillion tax increase over 10 years on workers.
Sen. McCain’s plan will count the health care you get from your
employer as if it were taxable cash income. Even after accounting for
Sen. McCain’s proposed health-care tax credits, this plan would
eventually leave tens of millions of middle-class families paying
higher taxes. In addition, as the Congressional Budget Office has
shown, this kind of plan would push people into higher tax brackets and
increase the taxes people pay as their compensation rises, raising
marginal tax rates by even more than if we let the entire Bush tax-cut
plan expire tomorrow.
The piece is interesting throughout, for instance:
Overall, Sen. Obama’s middle-class tax cuts are larger than his partial
rollbacks for families earning over $250,000, making the proposal as a
whole a net tax cut and reducing revenues to less than 18.2% of GDP –
the level of taxes that prevailed under President Reagan.
I would look more closely at the implied structure of fiscal commitments over time and what each candidate is likely to actually do (as opposed to promise) when it comes to Medicare and other health care issues.
I cringe whenever a politician tells us of his/her ‘plan’ for anything. ;-(
this kind of plan would push people into higher tax brackets
It would push a lot of people to become self-employed (i.e. contractors). I am already at the margin as someone who gets rather little value (compared to the nominal dollar cost) from the health insurance provided by my employer. But I’m not yet quite annoyed enough to try to strike out on my own and convert that benefit into cash compensation. Under McCain’s plan I would almost have to, however.
This all points to the need for tax code simplification. It has become almost impossible to figure out what exactly is a tax increase or a tax cut. Too often calls for tax code simplification are tied to serious reductions in tax revenue and/or progressivity, and thus have a zero chance of political success. Even if tax revenues were not cut and progressive marginal rates were retained, a simplified tax code would at least allow people to more clearly evaluate proposals by politicians.
Liberalarts: while I agree that tax code simplification is a good thing, and that it is too often tied to serious cuts in revenue/progressivity that makes it unpopular, I don’t think it is that difficult to tell what is a tax increase or a tax cut, at least not for someone who has done their taxes before. It’s just that the media doesn’t seem to focus on this or explain it.
While the constant avoidance of the news talking about McCain’s clear tax increase on health care and the repetition of “Obama is going to raise taxes” when he’s running on cutting taxes may be interpreted as pro-McCain, anti-Obama bias, I don’t think so. It’s probably a business decision–who other than us crazy econ blog readers cares about the wonky parts of policy that probably won’t ever get enacted? Most people would probably change the channel after 30 seconds.
By the way, actually doing taxes is very, very simple using TurboTax or TaxCut software. My above point is that it is hard to know in advance what one’s current marginal tax rate is and what the effect of a policy change is on marginal tax rates and total tax burden.
John Thacker, couldn’t you also offset the
tax-base increase by lowering rates, so that the change would be revenue-neutral?
I think it would be a good thing to get away from employer-paid health care. If we eliminate the differential tax treatment of employer-paid health care vs. employee-paid health care, there would no longer be any rationale for employer-paid health care.
Also, it’s good to discuss the issue, even though we can’t rely on either candidate’s current statements as a guarantee of what will happen if he’s elected.
No one asked me, but we really should have a consumption tax. You show your income and you show how much you’ve saved and the difference is taxed. Since you have an easily determined tax base, progressivity and exclusion on income would be easy. I prefer taxing consumption to taxing income (earned and investment).
As far as the plans, tax legislation arises from the House Ways means committee, so Charlie Rangel’s plan is what we should be discussing.
In any case the discussion is almost impossible to have because wide variables affect each taxpayer: mortgagee? Schedule A or Schedule C income (or other schedule)? Children? Student loans? How much in state taxes and property taxes? Miscellaneous itemized deductions? AMT?
And if you just want to discuss tax and fiscal policy, all the politicians manipulate the phase-outs. For example, Obama likes to say he’s not raising taxes because the Bush cuts are just expiring, but he includes the projected revenues in his budget analysis. McCain is similarly lying.
McCain’s health plan is revenue neutral. It doesn’t raise taxes. It redistributes tax subsidies for health insurance by replacing the current system with a $5,000 annual tax credit for every family — regardless of income and regardless of how the insurance is purchased.
The huge beneficiaries of this plan are middle and lower-income families. But even high-income families will benefit from better incentives. No longer will people be able to lower their taxes by buying more health insurance. And, if people find ways to economize on insurance costs, every dollar they save is a dollar of after-tax income they get to keep.
@ Kenny: The president’s office is the single largest originator of legislation. Given that offices bargaining power (the veto), I would pay attention when they propose a plan.
Secondly, the director of the GAO was on Glenn Beck’s program (I know, not the most bias show, but the GAO is supposedly unbiased). The director said that if the gov. were required to do accounting like a corporation–acount for future liabilities–the U.S. would have a situation in the forseeable future where a 100% tax rate wouldn’t cover everything. His basic point was that the spending the U.S. does, and is set to do under social security, medicare, medicaid, etc…, is for more detrimental to our future than what we tax ourselves. As this is an economics blog I understand the interest in current tax rates, but I think the gov.’s long term expenditures are th real problem. The next G.M. or Ford could be the U.S. gov.
It will certainly raise enormous sums over time, but I am doubtful it will yield any cost reductions.
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