Friday, February 18, 2011

Taxing Healthcare?

In the small business section of the Wall Street Journal online today, there's an intriguing piece which discusses one option to fixing health care: Taxing it.
In one finding, more than half, or 55%, of the bloggers think that the Affordable Health Care Act should be repealed, according to the study. But, says Tim Kane, an economist at Kauffman, the health-care debate is more complicated than just a yes-or-no question.
“The secondary concern is keeping or repealing health care,” Mr. Kane says. “The first concern is fixing the tax code.”
Despite their split feelings on the health-care act, the survey shows that almost all the respondents – some 71% - agreed that the solution to America’s health-care crisis is to tax health benefits as income.
I think I'm about to surprise a lot of people, but here goes: This is actually reasonably smart in a number of ways. Firstly, it would allow potential employees to weigh offers for jobs better, because they automatically would want to know the monetary value of the health care insurance they would be receiving, now that it's taxable. Second, it would increase competitiveness on the open market: The lower a company can bring the costs down to, the less an individual would owe in taxes. Third, it's a lot more similar to a consumption tax, and may make it easier for people to transition over to such a tax in the future: Pay a tax based on the value of what you receive. Fourth, it shifts taxes more evenly to those who receive more for their work: Lower-skilled workers who don't receive health benefits are paying zero, while those who receive huge benefits chip in a piece to government. Fifth, it eliminates tax loopholes such as people simply ponying up for a larger plan and reducing their take-home pay and therefore their taxes, which also causes an overspending on medical care.

Of course, this only works if this is in conjunction with a lowering of tax rates as a whole, and that it would never go back (which is incredibly unlikely). As the article notes, there would now be a much larger tax base to tax from: Average health plans for individuals were about $4,000/year and $12,000 a year for families, and estimated tax gain could be about $250,000,000,000 (always looks better written out). To steal from Jonathan Gruber of MIT, who wrote a piece recently in The New York Times on this subject, and from former President George W. Bush, the best solution that could work alongside this may be a large flat tax credit - something which also would increase choice, particularly to lower-wage workers, and avoids the major bureaucratic costs that come from a government-run option (let alone the costs in freedom, choice, and the insane tax overrun needed to fund it). Give individuals a $5,000 tax credit and families a $12,500 credit: Individuals and families would now have the option to decide where to spend their money, and know that whatever they spend on medical, that amount will be credited against their taxes up to the credit amount. They also will have the flexibility to choose who they want their insurance from and what coverage they'd like, being able to weigh whatever options their workplace offers against taking that money in income and spending it on another plan which suits them better.

Of course, if such an exchange can't be agreed upon, there's always the ideas from Scott Adams (of Dilbert) on How to Tax the Rich. Funny, but also really interesting.

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