Congress plans to eliminate health insurance tax break

Currently, tax-free health benefits from employers are the largest tax break in the nation. The estimated 2010 cost of this tax advantage is $155 billion and is projected to increase to $924 billion by 2014, according to the White House office of Management and Budget.

Note that these costs are just estimated potential revenue gains if the Treasury were to tax employer health insurance benefits.

Tax writing committees in Congress are busy drafting a plan that will place a cap on these tax breaks that currently benefit high income employees with top notch insurance policies. Their plan will call for these individuals to pay taxes on part of their received benefits. Congress plans to unveil this health care proposal next week.

Going after the health-care tax exclusion has
bipartisan appeal. In addition to being a favorite of George Bush and John McCain, liberals have accepted it because the current tax break favors the rich and is the best way to generate the revenue needed to cover the 46 million uninsured Americans.

The basic rule in any policy decision is that a tradeoff must exist to balance the costs and benefits. The current tax exempt system granted to employers offers more incentive to allocate more income for health insurance, which decreases wages.

Also, when the Treasury collects fewer taxes from these high income employees, they must make up for this loss of potential revenue by raising taxes elsewhere or increasing the national debt.

The major problem with this system is that it's unfair. Americans who opt to search for health insurance not offered by their employer do not receive the tax benefit. This also increases the fear of switching jobs, and thus not receiving the same health benefits.

The problem with the new plan proposed by Congress is that if you tax health insurance, it increases the financial burden and decreases the incentive to place more money aside for insurance. The big question is whether or not you value top health insurance over higher wages.

To further understand the health insurance tax subsidies refer to this brief prepared by the Kaiser Family Foundation.
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