In an editorial in yesterday’s New York Sun, Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor and a senior fellow at the Hudson Institute, misrepresented the effects of Sen. John McCain’s (R-AZ) plan to expose health benefits to taxes. In defending McCain’s proposal, Furchtgott-Roth argued that McCain’s proposed tax credits “would wipe out the new tax liability for nearly every worker”:
Workers in the 25% tax bracket pay an extra $5,000 in tax on an additional $20,000 of income. So a $5,000 credit would offset the federal tax on employer-paid premiums up to $20,000 — and an average plan only costs $12,000 per year, according to the bipartisan National Coalition on Health Care.
Furchtgott-Roth is wrong. As James Kvaal, Peter Harbage, and Ben Furnas point out in a recent report, because McCain’s tax credits are indexed to inflation — and not the faster growing cost of health care — McCain’s tax credit quickly becomes a tax increase. In fact, the largest tax increases fall on middle-class families:
The largest tax increases fall on those who earn enough to be in the 25 percent or 28 percent income tax bracket but not so much that they no longer pay Social Security taxes. Higher income families — those who pay higher income tax rates but no Social Security taxes on their incomes above $208,000 a year — would see a smaller tax increase.
From the report: