From TruthOut
By Dean Baker

As a card-carrying economist, I don’t like the unlimited tax deduction for health insurance premiums. It is regressive and just plain bad policy.

Low- and moderate-income people are both less likely to have employer-provided health insurance, and benefit much less from the tax deduction if they do. Most of these families will have no income tax liability. So, if they get a $12,000 employer provided plan, their tax savings will only be on the 15.4 percent payroll tax liability, which would come to $1,850 in this case.

By contrast, if a family earns $250,000, it is in the 33 percent tax bracket. If this family gets a $25,000 policy from an employer, the government is effectively paying almost half the tab, or $12,100. In this case, the government ends up paying almost seven times as much to subsidize the health care of a high-income family as it does for a moderate-income family. That policy is hard to justify.

Of course the vast majority of the people who benefit from the tax deductibility of employer-provided health insurance do not earn more than $250,000. Most are solidly middle-class, many of them are union members.

The unions have taken a strong position against efforts to place a cap on the size of the tax deduction as a way to help finance health care reform. Many union contracts provide for plans that would likely fall over the cap. As a result many middle-class union members could be looking at tax hikes in the neighborhood of a $1,000 a year if caps were imposed.

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