Taxing Benefits vs a Salary Cut–McCain’s Hobson’s Choice

If McCain is elected and implements his health program you can say good bye to employer based health coverage and expect a salary cut.

The McCain health plan proposes to tax health benefits provided by employers as ordinary income.  If the employer stops providing health benefits (worth up to $12,000 or more) then there will be a tax credit offered of $5000/couple ($2500/person) to buy insurance in the open market.

You have to watch your wallet here.  By slight of hand the plan takes an up to $12,000 insurance benefit that comes with employment and throws you into a treacherous individual insurance market with $5000.  If you or a family member have a serious illness under McCain’s “plan” you will be charged more or even denied coverage.  If you are healthy you may be offered a variety of products many of which provide inadequate coverage that you only discover is inadequate after you become sick.  You will be rated each year and there is no guarantee of continued insurance coverage at any price if you are in great need.  Quite a program for insurers.

Adding insult to injury, you remember your health benefit that was being taxed as your ordinary income?  It was worth up to $12,000.  Guess whose money that is?  It was to be taxed as your income but as soon as the employer dropped coverage, your income became the employer’s revenue.  In other settings that’s what’s known as a salary cut.  It’s almost as obtuse and ingenious as leveraging mortgages or credit default swaps.

I should disclose that while I don’t particularly care for employer provided coverage, the McCain program would be an abomination.

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2 responses to “Taxing Benefits vs a Salary Cut–McCain’s Hobson’s Choice

  1. Paul,

    You should talk to an economist. They always say that employer-provided health care comes out of the employee’s paycheck. So that if the employer did not provide health care, the premium money would end up in the employee’s pocket.

    In principle what McCain was saying was that the money that the government had been forgoing would be given to the employee; and the employee would also, actually, get a raise in their paycheck.

    Not that I voted for McCain

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