During the presidential campaign, progressives criticized Sen. John McCain (R-AZ) for dismantling the employer-based health insurance system by exposing employee tax benefits to income taxes. This morning, Sen. Max Baucus (D-MT) proposed financing his comprehensive health reform plan by reforming the tax incentives for employer coverage.

So what’s the difference? Why aren’t progressives jumping down Baucus’ throat and accusing him of treason? While McCain proposed replacing the employee deduction with a one-size-fits-all tax credit without reforming the health insurance market, Baucus pairs employee-tax tweaks with market reforms that would increase access to group coverage.

Baucus proposes two changes to the tax exclusion: capping the amount of health care premiums that can be excluded from employee wages and restructuring the exclusion on a sliding scale based on income, giving people with lower wages a larger deduction. But, since the plan simultaneously expands Medicaid, Medicare and SCHIP, creates an insurance exchange, allows Americans to buy into a new public plan, and ends discrimination against individuals with pre-existing conditions, the restructuring of the tax exclusion would not leave Americans without coverage.

Most progressives recognize the regressive nature of the employee tax exemption. As the Baucus white paper points out, “current incentives are also regressive because they are, for the most part, more valuable to taxpayers who are subject to higher marginal rates. As such, they give larger subsidies to higher-income workers, instead of to the lower income Americans who need more help buying insurance.” In fact, even Obama adviser Jason Furman argued that our current tax exemption for health insurance could (or should) be revamped.

The Baucus plan also meets another progressive requirement: it builds on the current employer-system. While the employer-based system isn’t perfect, it plays a crucial role in connecting Americans to coverage by encouraging risk pooling through employer policies and guarding against adverse selection. Baucus seeks to expand and strengthen the system by requiring employers to offer a Section 125 plan which would allow employees to pay their health insurance premiums through their employer’s payroll deduction and with pre-tax dollars.

As Ezra Klein points out, “by offering something that hews closely to Obama’s principles and traces the expressed preferences of most leading Democrats, [Baucus] he’s constructed a broadly acceptable base on which to build the process. There is plenty yet to be defined, traded, added, and decided — which is to say, there is plenty of reason for other senators to take a role in the process. If his colleagues agree, then this will be, as Baucus hopes, Max Baucus’s health reform process.”

Our guest blogger is Brian Levine, a Senior Policy Adviser at the Center for American Progress Action Fund.

Last week, progressives won a resounding victory. The question is: Now what? Today, the Center for American Progress released its own recovery strategy for 2009 and beyond. The CAP report cautions against being “penny wise and pound foolish” as we confront large budget deficits in the short-term. We must invest immediately in health care, energy and education to help our economy through this crisis and lay the groundwork for future growth.

The report lays out a strategy that begins with stabilizing the economy by ensuring the solvency of financial institutions, restoring confidence to the credit and stock markets, and ending the housing crisis, while jumpstarting the recovery with an intelligently crafted stimulus package.

These steps must be accompanied by a sustained economic agenda that focuses on build­ing the foundation for a brighter future. As the report points out:

Today’s crisis is not just the failing economy but the looming barriers to future prosperity in the form of unsustainable and growing levels of health care costs, the lack of adequate clean, depend­able energy, and our inability to educate our children for the needs of our economy.

We must slow the growth of health care costs, which will require an upfront investment, partly because it requires universal coverage. In addition to covering everyone, we must incorporate new medical technologies into the system and promote more efficient delivery of care.

We need to invest in a new green energy infrastructure to create jobs now and begin the shift to clean, sustainable energy. Using energy more efficiently makes our economy as a whole more efficient. And renewable energy and efficiency are growth industries that can drive American economic leadership well into the future.

And the economic crisis must not prevent us from transforming the public education system to one that prepares our children to compete for high-quality jobs in the global economy and tackling the problem of college affordability.

After the period when deficit spending is needed to strengthen the economy, we must restore fiscal discipline as quickly as possible.