McCain’s Plan To Tax Health Insurance

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

Earlier today, McCain advisor Douglas Holtz-Eakin answered critics of McCain’s health care plan, who say it could raise taxes on millions of middle-class families. He said:

[The McCain plan] is a transformation of the tradition of a tax subsidy to private insurance to make sure that subsidy is fair, both in the sense that it is available to every American regardless of the source of their private insurance and that every person gets the same amount — $5,000 for a family, $2,500 for an individual. The Obama campaign has chosen to characterize only one piece of a comprehensive health care reform as a tax policy and thus try to hit John McCain with it. It is classic political rhetoric at odds with the reality of dealing with an important problem, like the underinsured in America.

Actually, considered as a whole, McCain’s plan will raise taxes on millions of workers for two reasons. First, his plan would tax workers’ health benefits, which are largely tax-free today. Although he also creates a new tax credit for insurance premiums, many workers will pay more in taxes on their insurance then they get from the new credit.


Second, the value of McCain’s credit will erode quickly. While health care premiums are expected to grow by 7 percent a year, McCain’s credit will increase by only about 2 percent a year. In contrast, current tax benefits keep up with rising premiums.

More details on the tax implications of McCain’s health care plan are available here.