NEW STUDY: McCain’s Health Care Plan Raises Taxes On Millions Of Middle-Class Families

This is part one in a series of blog posts explaining the findings of John McCain’s Radical Prescription for Health Care, a new paper from the Center for American Progress Action Fund. For more, check back here tomorrow and the day after.

John McCain has a radical plan to change the way Americans get their health care: eliminate the tax break for employer-based health coverage and replace it with a $2,500 tax credit for individuals and $5,000 for families. It’s one piece of his Bush-like plan to push people into the deeply flawed individual market.

Reforming the tax treatment of health insurance, done right, could be an important part of health reform. Here’s the problem: McCain’s plan would raise taxes on millions of families, falling mainly on the middle-class, while failing to make insurance affordable for many others, especially low-income families and people with pre-existing conditions.

A central flaw in McCain’s plan: his new tax credit grows at the rate of inflation (about 2 percent a year) rather than the rate of health care costs (about 7 percent a year — which the current tax benefit matches). In 2009, McCain’s credit will cover 36% of the costs of an average family premium, by 2018 it would only cover 24%. This means that most families who get health insurance through work will see a dramatic increase in taxes.

McCain Credit/Tax Hike Fro $40,000 Family

Read the full analysis here.

This chart shows the tax effects on a couple earning $40,000 and paying $14,000 in premiums each year (the average premium cost in 2009 as predicted by CBO growth rates).

In 2009, McCain’s plan would cut their taxes by $50, but by 2013, as the value of the credit erodes, this family’s taxes would increase more than $1,100. By 2018, they will be paying over $2,800 more.

It’s unlikely that Sen. McCain really wants you to be paying higher taxes. He is after a different target: a radically different health care system, where families pay more of their own costs and choose among deregulated insurance companies. But few families facing a hefty tax increase will consider themselves better off.

UPDATE: Jonathan Cohn at The New Republic has more.