Out in the Open

I was listening to an old Green Hornet radio episode and heard this exchange:

"Then you three are motivated by civic interest?  Not by a desire to make a profit?"

{Laughingly} "The three of us are in the 80% tax bracket.  How could we make a profit?"

That was 1946 and between President Obama and Governor Dayton, it looks like we're headed there again.  The combined federal and state income top marginal rate is over 50 percent already in some states.  That, the substantial rise in health care insurance premiums thanks to the Affordable Care Act (ACA, a.k.a. Obamacare), and the 2012 election results make me think it's time to really shake things up.  It's time our Low Information Voters start seeing some High Reality Consequences.

It's time to make employee health care benefits taxable as the income it truly is.  It is now a substantial, untaxed portion of the typical full time paycheck, large enough to raise serious fairness issues.

Such a change wouldn't necessarily have to result in an overall tax increase.  The bracket rates could be lowered to compensate.  But even so there would be winners and losers.  Winners would include those who do not get employer paid health care, who would now pay a lower rate.  Losers would include many of those who do.  And in these days of "tax fairness" how can even a Democrat complain?

Lets take taxpayer A, a part time college student making $10 an hour full time for about $ 20,000 annually.  If covered by his parents' plan (thanks to the ACA), he pays about $ 1,100 in Federal income tax.  So does taxpayer B who also gets individual medical coverage worth about $ 2,400 today, $ 3,400 under the ACA.  If taxable, that would add another $ 350 to her tax bill, $ 500 under the ACA.  And it should, equating her with taxpayer C that makes $ 22,400 and buys her own health care that she cannot deduct today.  It's the fair thing to do, even by Democratic Party standards.

Putting health care out in the open also invites more open press coverage of the actual costs of the ACA, easily compared to the decreases promised.  And, it puts public union labor contracts in their full proper perspective.  You think the Amalgamated Transit Union Local 1005 is only getting three 2% increases from Metro Transit?  Factor in the growth in health care, now exacerbated by the ACA and you quickly see they are doing much better.

Of course, this will also bring on some questions of equal pay for equal work and I say, bring it!  It's long overdue, even by Republican Party standards.

Comments

[Hiram]

"It's time to make employee health care benefits taxable as the income it truly is. It is now a substantial, untaxed portion of the typical full time paycheck, large enough to raise serious fairness issues.

"Such a change wouldn't necessarily have to result in an overall tax increase. The bracket rates could be lowered to compensate."

I have to ask, if the taxes you pay are just the same, what's the point of the change? If there are winners and losers, who will they be? Will the overall effect be to shift the tax burden from higher to lower income tax payers, a redistribution of the tax burden? From those best able to afford taxes to those least able to afford taxes?

The simple way to think of medical coverage is as additional, untaxed, income. One alternative would be for your employer to give you the value of your health insurance, and let you buy the equivalent yourself, assuming of course, that the equivalent insurance would be available at the same price to an individual insured as it would be to a group insurer. Instead of getting that amount as untaxed income, you would received it as income, and deduct the cost presumably. So you would be out the difference between the cost of health insurance, and your tax savings. What do you get for this higher cost? A lower tax rate which presumably becomes more expensive as income levels rise. So how are these lost taxes made up? Through greater productivity? Not for the company. They get the same deduction either way. Their situation remains unchanged. And if there is no lost tax revenue, if the overall situation remains unchanged, what was the point of engaging in the process at all?

[Speed Gibson]

As I think even your comments concede, there are winners and losers today. Why do employed get to use pre-tax dollars for health care and the self-employed have to use after-tax? And why should someone with 6 kids in effect get substantially more income in terms of what left the employer's bank account vs a career single? Equal pay for equal work!

[Hiram]

Why do employed get to use pre-tax dollars for health care and the self-employed have to use after-tax?

The reasons are historical, as I understand it, having to do with wage ceilings after WW II.

And why should someone with 6 kids in effect get substantially more income in terms of what left the employer's bank account vs a career single?

Probably because he needs it more. My own feeling is that these things tend to even out over time. Personally, I have no problem at all with insuring someone else's kids, the very kids by the way who will be paying for my retirement.

[Hiram]

It's also the case that if I resented the fact that people with more children get more in health benefits, the obvious response is to have more children.