Barack Obama attacks John McCain’s health care plan as spurring the “unraveling of the employer-based health care system.” Big employers are siding with Obama.
Not surprisingly, employers want employees more dependent on them. Of course they don’t want it to become more affordable for you to strike out on your own. Sure, “unraveling” the employer-based health care system” is a bad thing for employers, but it might also be good for everyone else.
The core of McCain’s healthcare plan is shifting federal tax breaks regarding health insurance. Currently, health insurance fits into a special class of employer benefit—not only does your company get to deduct every dime it spends on your health insurance (as with all wages and benefits), but you don’t get taxed on the value of that benefit you receive.
So, consider the money your employer contributes to your insurance premium. If your employer instead used that money to give you a raise—you would pay taxes on the raise. If your employer gave you some other benefit (say, in-house daycare or a company car) you would have to report at least some of the value of that benefit to the IRS, and pay income taxes just as if your boss had given you a check. Health insurance gets special treatment as a benefit.
McCain would end the special treatment of employer-based health insurance, and replace it with a broad tax benefit for all health insurance purchases, whether through your boss or on your own. Your company health insurance would become a taxable benefit, adding thousands of dollars to your taxable income, but McCain would give you a $5,000 tax credit—not just a deduction, which would lower your taxes by only a few hundred dollars, but a credit, which reduces your total tax bill by $5,000. In fact, it would be a “refundable” tax credit, meaning you would get a $5,000 benefit even if your taxes were below $5,000 (which sounds kind of like welfare to me).
The New York Times reported that the U.S. Chamber of Commerce and the Business Roundtable didn’t like the idea of people breaking free from their employer for healthcare. “To some in the business community, this is very discomforting,” Chamber lobbyist Bruce Josten told the Times.
Of course it’s discomforting—it could spur entrepreneurship and boost employee independence. Currently, the tax code punishes you for finding health care outside of your employer, which makes you more likely to stay in your current job, which gives your employer more control over you. Rejected for a raise? You still can’t leave because you need health care. Want to strike out on your own? How will you afford health care for yourself and your employees?
As with most government subsidies, tax provisions, and regulations, the net effect of current government policy on health care is to pressure you to work for someone else and to make it harder for you to work for yourself. Not exactly promoting the entrepreneurial spirit.
Interestingly, the Times article lists the National Federation of Independent Businesses as one of the groups resisting McCain’s plan—NFIB’s members are small businesses, and so the group often has different interests from the big guys.
But business blogger Robb Mandelbaum at Inc.com reported that the Times seems to have missed the mark in this claim. NFIB’s Bob Graboyes proclaimed the group’s neutrality on McCain’s plan, and told Mandelbaum, “We’re still in favor of leveling the playing field for the large group, small group, and individual markets.”
Small businesses would have a much easier time attracting employees if people owned and shopped for health insurance the same way they own and shop for their car insurance and life insurance—buying it on the market, and owning it regardless of your job. Entrepreneurs would also strike out on their own more were it not for the difficulty in today’s market of finding insurance outside of your employer.
You see the battle lines here, and they are the same as always: Big businesses want things to stay the same and so they favor government barriers to markets; small businesses want a more level, open playing field, and so they want government to be out of the way—or at least more neutral.
Judging by the media debates and the poll numbers, the big guys are winning again.
Examiner columnist Timothy P. Carney is editor of the Evans-Novak Political Report. His Examiner column appears on Fridays.
