October 1, 2012

ONLY THE MONEY YOU PUT IN YOUR HSA SHOULD BE TAX EXEMPT:

End the Health Care Tax Break: Reduce Coverage? (MERRILL GOOZNER, 10/01/12,The Fiscal Times)

Health care insurance benefits have been excluded from taxable income since 1943, when the National War Labor Board ruled employers, who were offering health plans as a way to attract workers without violating wartime wage-and-price controls, could deduct their cost as an expense without reporting their value as income for workers.  As a result, employees get the benefit of the insurance without paying taxes on its value.
 
Workers weren't the only ones who benefited from the ruling. Neither employers nor workers had to pay their half of the Social Security (and later Medicare) payroll taxes that would have been assessed at a higher rate, had it been paid as straight wages.

Today, the ever-growing cost of health care has turned that little loophole into a subsidy program that costs the Treasury an estimated $240 billion a year. It is the single largest tax expenditure in the federal tax code.

Economists across the political spectrum are united in their analysis of its impact. It allows employers to spend more on health insurance than they otherwise would. It leads workers, especially if they are unionized and have voice in how any wage increases are allocated, to fight for lower co-pays and deductibles since those are paid with after-tax dollars. The two factors working in tandem encourage overuse of health care services, which drives up spending and eventually premiums.

"It turns into a vicious cycle," said Paul Fronstin, an analyst at the Employee Benefits Research Institute.

The exclusion is also unfair in the same way that any tax expenditure becomes unfair under a progressive income tax code. A person in the 30 percent tax bracket who gets a $15,000 family plan at work gets twice the subsidy as someone in the 15 percent bracket that belongs to the same plan.


Posted by at October 1, 2012 4:53 AM
  

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