Taxing Employer-Provided Health Insurance

Having just examined the $787 billion stimulus bill and its expenditures and noting that that bill clearly signals a government takeover of the health care industry, it is appropriate to wonder where the money will come from to pay for all of this. This is not all, of course, since there are the on-going bailouts, a huge omnibus "regular" government spending bill full of pig ears, and future stimulus bills to consider as well. Is it possible to pay for all this by taxing the rich more heavily? Certainly not. Everyone but a few of the most envy- and hate-ridden socialist ideologists recognize this fact.

So, Max Baucus (D.-MT), chairman of the Senate tax-writing Finance Committee, has proposed that the health care insurance benefits that employees get from their companies should be taxed. President Bush and Sen. John McCain had earlier suggested this. Thirteen other Senators have signed on to this idea. Obama has earlier rejected this idea, but he now is said to be willing to go along if someone else does the proposing. Apparently, if the House and Senate were to pass a bill to tax employee health benefits, he would sign the measure.

The health insurance benefit has never been taxed since it was first offered during WWII on a large scale. This reduces taxable earnings by about $9,000 per year for family coverage. Clearly, taxing this income will move many people into higher tax brackets and will increase government tax revenues. It will also encourage companies to drop this benefit. Indeed, this benefit will make no sense at all if individuals will have access to group insurance plans such as Obama has proposed and will not have the tax benefit.

Actually, it is only fair that this benefit should be taxed like all other income. But, if it is to be taxed, it should happen as a part of a general tax decrease from which everyone will save some money from falling into the rapacious hands of the government. Given the government's hugely wasteful spending plans and given the great damage it has done to the economy resulting in lowered tax revenues, there is no way that such a general tax reduction can be accomplished, at least not without acknowledging that lowering tax rates may soon generate more tax revenues. This happens both because the economy responds with increased growth, but also because at reasonable tax rates, people will make many more taxable transactions. The tax revenue is a function of both the tax rate and the frequency of taxable transactions. It is also a function of the frequency of reported taxable transactions.

The socialists in charge will not provide a broad-based tax cut when they start taxing employer-provided health insurance benefits.