Taxing health benefits isn’t a bad thing — if it’s done right

The Lansing State Journal reports on proposals to tax health care benefits provided by employers.

Michigan employers have been more generous than most in providing health insurance coverage to their workers, picking up the fifth-highest share of the premium cost, according to the most recent figures available.

That benefit has been provided tax-free to employees. But that could change.

The exclusion of employer-provided health care from taxable wages is the nation’s biggest tax benefit. The hundreds of billions of dollars in potential revenue is being eyed as one way to help pay for extending health care coverage.

“We should look at ways to modify the current tax exclusion so that it provides the right incentives,” said Sen. Max Baucus, the Montana Democrat working on a way to pay for changes to the health care system. “We should look at ways to make it fairer and more equitable for everyone.”

Although Americans are generally opposed to taxing health benefits, according to the article, they also seem to be opposed to having to rely on employer-provided health coverage. President Obama has made it clear that his administration also favors individual coverage that doesn’t depend on employment, in order to reduce the number of uninsured in America.

Leveling the playing field between employer-provided health care and individual plans is a good thing, but only if it’s done right. Simultaneous offsetting tax breaks would ensure that Americans’ checkbooks aren’t left any worse off by a policy designed to help increase insurance.

In other words, taking away employers’ ability to deduct employee health insurance benefit costs from their business tax basis is good public policy as long as individuals are simultaneously allowed to deduct the cost of buying their own health insurance from their own personal income tax basis. That is, a tax-break shift, not a tax-break elimination. This is not what the proposals currently under consideration in Congress would do, however.

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