Should employer sponsored health benefits be taxed?


Finding ways to pay for health care reform and greatly expanded health coverage for Americans is not easy.  First, nobody knows what the real cost will be. Second, some assumed savings are in realty generous guesses. Third, the unintended consequences of some of the revenue generating schemes are clearly unknown.

Among those under consideration is taxing employer provided health benefit coverage.  In addition, capping or eliminating the tax advantages of flexible spending accounts is also under consideration.  Most recently the House is looking at a surtax on the “wealthy.”  Wealthy in this case appears to be an income in excess of $250,000, just like Warren, Bill and Donald.

The argument for taxing health benefits is that they are available only to working Americans who have such coverage, about 150 million workers and their families or roughly half of all Americans.  Some experts claim that the tax advantage of employer based health benefits encourages generous benefits and therefore employers and workers do not care what health benefits cost.  Anyone involved in employee health benefits knows how absurd that claim is. The employee does not determine the extent of benefits and for the employer it is like saying it does not care about any deductible business expense.  I doubt there is a worker left in North America who does not care very much about the cost of health care albeit in many cases that concern is limited to the amount of the payroll deduction.

The tax status of employee benefits goes back many years and while there are some limits on the tax-free status such as with group life insurance, for the most part the tax policy for

I'm smiling because I know where your wallet is.
I'm smiling because I know where your wallet is.

benefits is there to encourage offering such programs as an offset to the need for more public programs.  What did I just say?  Congress at one time saw tax policy as a way of providing social welfare programs to workers in America.  Call me crazy, but are do we seem to be reversing direction these days?

Utilizing the private sector via tax policy to provide most Americans with financial and other security needs simply makes sense.  It is more efficient and it stimulates competition not to mention helping to support a massive industry employing millions of people. Private pensions and now 401(k) plans allow Americans to retire with a reasonable income.  Should we scrap the tax benefits of 401(k) plans or IRAs to expand Social Security?  Is that the mentality pervasive in Washington these days?  (I had better not say that too loudly, I will give a congressional staffer an idea).

Frankly, I fear it is and I fear most the unintended consequences.

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