The McCain Health Plan: Tax Increase Or Budget Buster?

Our guest blogger is James Kvaal, a senior fellow at the Center for American Progress Action Fund.

Nine months after it was released, we still aren’t sure whether John McCain’s health care plan would raise taxes on the middle class or blow up the deficit.

McCain’s health care plan would tax workers’ health benefits, which are largely tax-free today, and create new health insurance tax credits. But will health benefits be subject to both income and payroll taxes or just to income taxes? Since many families pay more in payroll taxes (which fund Social Security and Medicare) than income taxes, the distinction is critical. But the campaign’s statements have been inconsistent.

If it’s both payroll and income taxes, he will raise taxes on tens of millions of middle-class families. A recent Center for American Progress Action Fund report concluded that a typical married couple earning $60,000 would pay $1,100 more in taxes by 2013.

But if it’s only income taxes, he will blow a hole in the budget. The Tax Policy Center report puts the cost at $1.3 trillion over 10 years.

Either way, McCain’s tax credit would rapidly fall behind rising health care premiums. Nearly every household would eventually pay higher taxes on their health insurance.

The new Tax Policy Center report includes a wealth of information on McCain and Sen. Obama’s health care plans (although it is labeled “very preliminary”). Other highlights:

–The McCain plan would decrease the number of uninsured by 5 million in 2013. However, there would still be 55 million without insurance, 8 million more than today. And McCain’s plan covers fewer people each subsequent year.

Millions of people – 16 million in 2013 — would lose the health benefits they get from employers.

McCain’s high-risk pools would need about $100 billion a year to “prevent large losses in insurance coverage among the sick and needy.” McCain aides have proposed spending no more than $10 billion a year.