Palin Claims McCain’s Health Care Plan Is ‘Budget Neutral,’ Which Means It’s A Middle-Class Tax Hike

There is a contradiction in the way John McCain has been selling his health care plan: either it busts the budget, or it raises taxes on middle-class families. It has to do one or the other.

Lately, John McCain’s campaign has been going around saying he won’t raise taxes on middle class families.

But last night Governor Palin twice insisted that John McCain’s health care plan is ‘budget neutral’ too:

He’s proposing a $5,000 tax credit for families so that they can get out there and they can purchase their own health care coverage. That’s a smart thing to do. That’s budget neutral. That doesn’t cost the government anything…But a $5,000 health care credit through our income tax that’s budget neutral. That’s going to help.

Watch it:

By insisting that his health care plan is ‘budget neutral’ Palin is implying that John McCain raises taxes on middle-class families. If it doesn’t raise taxes, it’s not ‘budget neutral.’

Here’s how it works:

Giving every family a $5,000 tax credit costs $3.6 trillion over ten years, according to the McCain campaign. McCain wants to pay for it by taxing employer health benefits as income.


If he makes families pay both payroll and income taxes on their benefits, the Joint Committee on Taxation projects McCain can raise the $3.6 trillion, making the proposal ‘budget neutral.’

If he subjects benefits only to income taxes, as the McCain campaign now claims they would, the Tax Policy Center showed that he would fall $1.3 trillion short in paying for his plan. Under any definition that’s not ‘budget neutral.’

The ONLY way to make McCain’s plan ‘budget neutral,’ as Palin insists it is, is to repeal the entire exclusion for health care from both income and payroll taxes. And if this is what he does, then he raises taxes on the typical family making $60,000 by $1,100 by 2013.

In either case families would see their taxes go up eventually because the tax credit grows by the rate of inflation (around 2%/year) and the current exemption grows with the rate of health care costs (close to 7%/year). But if both payroll and income taxes are imposed on benefits, McCain’s tax increase would be much larger much sooner, and would fall most heavily on the middle class.

Senator McCain and Governor Palin are trying to have their cake and eat it too.