McCain's Plan To Lower Your Taxes

John McCain has a plan to lower your taxes. It involves raising your taxes. It involves making you pay more for health care. (This does not apply to those of you who can afford your own private health insurance policy. How many of you can do that?) Oh, the logic of the Republican mind.

From McCain Health Plan Could Mean Higher Tax by Kevin Sack and Michael Cooper:

The 71 percent of insured Americans who get their health coverage through their employers now enjoy a significant advantage because the money spent by employers on their health coverage is excluded from their taxable income. If employers chose to pay that share of a worker’s compensation as wages rather than benefits, the income would be taxable.

The exclusion costs the federal government more than $212 billion a year in income and payroll taxes, according to Congress’s Joint Committee on Taxation. That is more than the cost of the deductibility of home mortgage interest, according to the Employee Benefit Research Institute.

The tax treatment of health benefits has been criticized as both discriminatory and regressive, and some analysts believe it encourages workers to buy more coverage than they need, driving up health costs.

To end the disadvantage to those who do not buy insurance through employers, Mr. McCain proposes to eliminate the exclusion of health benefits from taxable income. In exchange, he would provide refundable tax credits of $2,500 to single people and of $5,000 to families, with the goal of stoking competition in the individual insurance market. The elimination of the exclusion would generate $3.6 trillion over 10 years, according to the McCain campaign, and that money would pay for the tax credits.

Mr. Holtz-Eakin calculated that workers in the top income tax bracket would have to pay more in taxes if their employers have been contributing at least $14,285 toward a family insurance premium. Nationwide, the average cost of a family policy is $12,106, with employers paying $8,824 of that amount.

While the change would primarily affect those with gold-plated insurance policies, health analysts point out that middle-income workers with conventional coverage could conceivably pay more in regions where insurance costs are high. Over time, that might depend on how the tax credits are adjusted for inflation, a detail Mr. McCain has not discussed.

Why is McCain’s mantra of “Tax cuts” not applicable here? In other words, how can a Republican get away with saying that he is going to raise taxes? Something funny is going on here. Why does he want to take the only form of health insurance that most Americans can actually afford and make it more expensive? Who will end up paying this tax? Is McCain trying to destroy the only form of health care that most Americans can afford? What will be left?

The talk of $2500 and $5000 checks strikes me as bribery. This is what some voters will hear and understand from all of this talk. The details of the plan won't matter and will take too much work to try to understand. I don't think that I really understand the details, and John (Mr. I Don't Understand The Economy) McCain probably doesn't either.

Reread this sentence: “ To end the disadvantage to those who do not buy insurance through employers, Mr. McCain proposes to eliminate the exclusion of health benefits from taxable income.” Poorer people cannot afford to buy health insurance. The only people disadvantaged by tax free health insurance through employers are rich people. What a world we live in. Rich people are now disadvantaged. I feel so sorry for them. If only the system wasn't screwing them all the time.

I agree with McCain that this system is flawed, but he is barking up the wrong tree here. The McCain rhetoric makes it sound like his plan is a good thing for middle class Americans. The reality of his plan is that it is a good thing for very rich Americans. Americans like Cindy McCain.

From Senator McCain's New Tax on Health Insurance by Jeff Liebman:

Strange winds are blowing in economic policy land. After failing to privatize social insurance, the Bush Treasury is now socializing private insurance. The Democratic presidential candidate is running on a tax reform platform that provides three times greater tax cuts for middle class families than the Republican candidate's platform. And the Republican candidate, after advocating deregulatory policies for 26 years in Congress, has now embraced the rhetoric of a populist regulatory reformer.

But the most unlikely wind of all is Senator McCain's health care proposal which by the end of his first term would increase taxes by $1362 for middle-income American families, while raising marginal tax rates on labor income by more than President Bush's tax cuts have reduced them.

Here's how the McCain plan works. Every family receives a refundable tax credit of $5000 that can be used only to purchase health insurance. Individuals receive $2500. McCain's advisers say the cost of this tax credit is $3.6 trillion dollars over ten years. They also say that their plan is revenue neutral because they introduce a new tax on employer-based health insurance that the Joint Committee on Taxation scores as raising $3.6 trillion over 10 years.

Currently, employee compensation in the form of employer-provided health insurance is exempt from both the personal income tax and FICA payroll taxes. Most employee payments for employer-based health insurance are also tax preferred. McCain's plan would eliminate these and other health-related tax expenditures.

The fact that the plan is revenue neutral means that the tax savings for families receiving tax cuts are exactly balanced by the tax increases for families whose taxes go up. But because the tax cuts are front loaded, after just a few years most American families will see their tax bills go up under the McCain plan.

Read the rest here.

Go ahead and vote for McCain if you like paying higher taxes, and getting less in return from those taxes. Unless, of course, you are incredibly wealthy. If that is the case, then McCain’s plan will give you more and make you even more wealthy.