For the last couple days, I've been reading about a plan the president will announce in the SOTU Address tomorrow night. Yesterday's story in WaPo indicates that the plan will be to impose a tax on plans a tax on the value of employer-provided health plans that exceed more than $15,000. The tax would be used to subsidize health plans for those who buy coverage out-of-pocket:
Under the president's proposal, workers who receive employer-provided health insurance would have to pay a tax on the cost of their benefit above $15,000, the threshold proposed by Bush for the tax break. For instance, if a person's health insurance costs $16,000, he would pay a tax on the $1,000 difference.
People with families who buy low-cost policies, meanwhile, would have their taxable income reduced by $15,000, regardless of the cost of the plans and whether they itemize deductions on their tax returns. The deduction would be $7,500 for single individuals. The deduction, to be indexed to account for inflation, would also be extended to those with employer-provided plans, to be offset by the cost of their coverage.
"This is a huge incentive for the uninsured to get coverage, but, also, the vast majority of people with employer-provided coverage will benefit as well," a senior administration official said. "This is essentially a standard deduction for health care, and the size of the deduction will be significantly higher than the cost of an average policy."
The Bush administration estimates that 80 percent of people with employer-provided plans would see their tax liability fall because the deduction would be larger than the value of their insurance plans.
It sounds like a good idea. But it sounds less like a first step to solving the nation's health care problem and more like a first step to doing away with the enormous regressive subsidies in the tax code. Why not do both?
There's no way around it: fixing health care isn't just a matter of redistributing some money, we're going to have to spend more. Trimming all the waste out of the system--the corporate profits, the expensive emergency care that could have been prevented by cheap preventive care, whatever saving you might realize from tort reform--won't be enough to pay for quality care for everybody. One good way to pay for it would be to gradually cap the enormously regressive tax deduction for home mortgage interest.
The house behind ours just happens to be an enormous mansion with lake frontage. It has a garage that's bigger than our house. What public policy is served by allowing my neighbor to deduct every cent of the interest he pays on the mortgage for his mansion?