There's a consensus building among Washington power brokers and policy wonks that may rub out several of our most cherished tax deductions in order to finance the Obama administration's health care reform plan.
The most endangered of these is the long-standing tax exclusion for employer-paid health insurance benefits - the cornerstone of the nation's present system for encouraging businesses to provide health coverage for workers.
Since World War II, this exclusion for employer-sponsored insurance has grown to become the single largest subsidy in the Tax Code. During 2007 this provision lowered taxes for American businesses by $247 billion - money that many congressional health reformers now consider essential to financing the administration's health care overhaul.
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But while the ESI may be the biggest item on the health reform chopping block, it's not the only one. Others that may be on the endangered list include the popular flexible savings accounts used by workers to pay some medical bills, tax-preferred health savings accounts that provide significant deductions for self-employed individuals, and the current personal tax write-off for taxpayers whose family health expenses exceed 7.5 percent of income.
Robert Greenstein, executive director of the politically liberal Center on Budget and Policy Priorities, called on Congress to consider pulling the plug on all three during a recent Capitol Hill Roundtable Discussion hosted by the Senate Finance Committee to explore the tax changes needed to pay for President Obama's health reform.
Arguing that the deductions may no longer be needed once a stem-to-stern reform of health care is enacted, Greenstein also lashed out at what he described as the "poorly targeted" ESI. "The employer-paid health benefit tax exclusion gives the greatest benefit to those with the highest incomes, although they are the group that least needs help paying for health insurance," he told lawmakers.
Tax subsidies for employer-paid health benefits are also coming under fire from the political right.
In a separate statement at the Senate roundtable meeting, American Enterprise Institute scholar Joseph R. Antos agreed with Greenstein that the ESI is unfair, noting that it provides "tax savings to people on the basis of their employment, rather than on their need for financial help."
Instead of eliminating deductions for ESI, Antos proposed capping the amount that businesses could write off, "such as the 75th percentile of insurance premiums."
Requiring employees to pay a tax on premiums over the cap "would generate pressure from workers to their employers for less-expensive insurance options," he said. "The additional revenue collected in this way could be used to fund refundable tax credits or other subsidies to low-income persons for the purchase of insurance."
For his part, Finance Committee Chairman Max Baucus, D-Mont., nuzzled up to proposals for caps on ESI. Although he cautioned against eliminating the exclusion altogether, Baucus called the present "unlimited exclusion for employer-provided health care" a "regressive approach that often leads people to buy more health coverage than they need."
