A domestic focus of President Bush’s State of the Union address was a proposal aimed at expanding access to affordable health insurance that faces a tough political road to becoming reality.
President Bush’s plan would be part of a major change to the tax code -- treating employer-provided health insurance as taxable income (instead of exempting it from income and payroll taxes) and creating a new tax benefit for those buying insurance on their own rather than through an employer.
The standard deduction the president is proposing for health insurance would be $15,000 for families and $7,500 for individuals. Bush said in his speech that the deduction would mean lower taxes for more than 100 million Americans with employer-provided coverage worth less than the standard deduction, while White House officials also said that the deduction would raise taxes for about 30 million people with more expensive plans.
Employer-provided insurance is how more than half of Americans get their coverage.
Congressional Democrats have already described the plan as a middle-class tax increase penalizing people with good health benefits. They’ve also noted that the change would increase the number of people insured by about 5 million, when nearly 47 million are uninsured.
“This reform will level the playing field for those who do not get health insurance through their job,” Bush said. “For Americans who now purchase health insurance on their own, my proposal would mean a substantial tax savings … And for the millions of other Americans who have no health insurance at all, this deduction would help put a basic private health insurance plan within their reach.”
Meanwhile, tax policy think tanks aren’t necessarily thinking alike when it comes to assessing the proposal’s pros and cons.
A study from the Tax Foundation found that deductions for purchasing healthcare insurance would help less than half of the uninsured. A study authored by a staff economist says that than half of Americans without health insurance pay nothing in federal income taxes and would therefore be unable to take the deduction.
The Tax Policy Center noted that the proposal would be revenue neutral over ten years, after which it would generate a growing stream of revenue, and characterized the plan as a major step toward improving the efficiency of the market for health insurance. “By severing the link between work and insurance, it would offer everyone the same tax incentives to obtain insurance coverage and limit spending on health care,” the center said in a statement.
Not that the center didn’t offer up a few modifications, including replacing the deduction with a refundable credit or voucher that could provide more assistance to low-income families -- ostensibly increasing coverage and improving progressivity.
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