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Could tax break be a healthcare benefit?

Hillary Wicai Jan 22, 2007

KAI RYSSDAL: President Bush delivers his State of the Union speech tomorrow night. But he stole a bit of his own thunder over the weekend. He announced changes he wants to make to the way health insurance benefits are taxed.

The White House says the idea is to make coverage more affordable for the nearly 47 million Americans who don’t have it.

But I can hear just what you’re thinking: How are we going to afford another tax break? Marketplace’s Hillary Wicai has the story.

HILLARY WICAI: If you have employer-provided health insurance, you don’t pay any taxes on that. Under the President’s proposal, that health insurance benefit would become taxable income.

That’s right: you’d pay taxes on your health benefits.

Wait a minute. This president, raise taxes? But just as quickly, the President says he’ll cut you a break if you buy health insurance.

Analyst Robert Laszewski says here’s how it’ll work.

ROBERT LASZEWSKI: While he would take away the current tax exemption on the health insurance benefits you get from your employer, he would turn around and give you a very generous, probably more generous tax deduction than you have today.

The president’s proposed deduction? $15,000 for families and $7,500 for singles.The administration says most of us will make out ahead. The few who have really expensive insurance policies — worth more than 15 grand a year — are the losers in this plan.

But some say in order for this plan to be cost-neutral, more of us would end up on the losing side of the equation over the long run.

Economist Len Berman is with the Tax Policy Center:

LEN BERMAN: So the secret is that the standard deduction is gonna grow at a slower rate than healthcare cost inflation.The administration has held briefings on the plan and it’s getting a lukewarm response. Analysts are saying taxing the more expensive policies to help those without insurance buy some seems like Robin Hood. But maybe not: by Berman’s logic, working families may feel the pinch over time.

In Washington, I’m Hillary Wicai for Marketplace.

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