Is a Middle Class Tax Increase on the Way?
More recently, the President stood by meekly as Congress stuffed the omnibus spending bill with raw pork. His only defense was that it was “last year’s business.” That’s a funny one, considering that Obama was part of “last year’s business” himself.
Now it appears that Congress may have its own ideas about how to fund the President’s new health care initiatives. The White House wanted to fund it by scaling back itemized deductions for taxpayers making over $250,000 per year. Congress may very well reject that idea and substitute a middle class tax increase.
The Move to Tax Health Care Benefits
Of course, the politicians won’t call this a “tax increase.” They will use spin words such as “fairness” or “spreading the burden.” Call it what you want, but it will raise taxes on the 60% of under-65 Americans who receive employer health benefits. Two of Obama’s budget advisers were openly supportive of this concept before taking jobs in the administration.
Will Obama Cave?
Obama is caught in a tough position on this issue. The hallmark of his campaign promises was tax relief for the middle class. There are millions of middle class wage earners who would see a significant tax increase if their employer-provided healthcare benefits were taxed.
Obama has a second problem. Candidate John McCain proposed taxing health care benefits during his campaign. Obama slammed him for making such a suggestion, calling it a “multi-trillion” dollar tax hike on the middle class. Will he allow himself to be labeled a complete hypocrite on a prominent policy issue so early in his presidency?
So up to now, Obama has said nothing about this middle class tax and spend health care strategy and it is not in his budget. Yet this past weekend, the White House Budget Director conceded that all health care funding options were on the table, including this one. I don’t think that letting his budget director take the heat will firewall the President against a flip-flopping charge. The Democrat party’s union constituencies will be particularly disturbed. They love those health care benefits. For some family health plans, that could mean an extra $7,000-$9,000 in taxable income to a union member.
The Consequences for Small Business
Some of you may think that the solution to the dilemma is to go ahead and tax employer health care benefits – but stick it only to the higher income employees. I think that will backfire.
I am one of the owners of our small business. We provide health insurance for our employees. We pay 100% of the premiums and fund most of the annual HSA deductibles. Now let’s assume that Charles Rangel and friends decide that those of us who own the business (and make the most money) should be taxed on the value of our benefits. My reaction will be this: If you are going to tax my benefits, there is very little incentive for me to purchase insurance as part of a small group, unless the group premium savings exceed the taxes that I pay. We might decide to give all of our employees a raise and tell them to go buy their own insurance because we are finished with it. Everyone is on their own to make their best deal. That helps to insulate the small business owners from the never-ending premium increases, which always seem to exceed the rate of inflation. Employer-sponsored health care is a huge time and money drain.
I predict that a lot of small businesses will say the heck with the entire health insurance headache and do the same thing. What will the employees do? Some of them will take that extra money and use it to buy a new car or take a vacation instead of buying health insurance. This will shift more of the health care burden back to government. Maybe that’s part of the grand plan anyway. Taxing employer provided benefits is just one way to advance the ball toward that goal.
What do you think about the merits of taxing employer health care benefits?
Image credit: Tiggywinkle