Feature Story

March 30, 2009

Not-so-easy money: Taxing health benefits comes with costs

From Economic Policy Institute:

Unlike wages, health insurance premiums are not subject to taxation. Proposals to end this tax exclusion are emerging in the discussions of how to pay for health care reform. Recent articles from the New York Times, the Washington Post, and the New Republic have reported that top White House aides and members of congress want to keep the option of taxing employer health benefits firmly on the table. At the recent White House Forum on Health Reform, Senators Max Baucus and Ron Wyden continued their calls to change the tax treatment of health benefits in order to fund coverage expansions.

In a climate of substantial budget deficits, the prospect of recouping upwards of $200 billion by taxing these benefits is enticing. But we should proceed with extreme caution before moving to cap or eliminate this tax exclusion. In trying to pay for coverage expansions, taxing health care benefits shouldn’t be the first place we look, but rather the
last, and only after large-scale health reform is in place to cover everyone.

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