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Tuesday, May 06, 2008

Savings from McCain's Health Care Tax Credit

With the re-release of John McCain's health care plan came a lot of criticism (along with praise) over who benefits from his tax credit.

McCain would offer tax credits of $2,500 for individuals and $5,000 for families, but would tax employer-provided benefits for health insurance (employers would still be able to deduct health care benefits as a business expense). There has been some speculation that there would be winners and losers—i.e. some who would pay more in taxes on employer health benefits than the amount of the tax credit—but my back-of-the envelope analysis reveals that those would only be higher income-earners with very costly employer benefits. All of the projected scenarios in my calculation (see below) benefited from the tax credit (my highest income/benefit was a $125,000 income with a $20,000 family or $10,000 individual health care benefit.)

My analysis also shows that

  • Those without employer benefits would benefit most (receiving the full $2,500/$5,000 credit)
  • The credit would be progressive—lower income-earners would benefit more, as would those with lower employer benefits
  • Generally, families would receive a greater tax deduction than individuals.

McCain's plan also includes support for state high risk pools and gives individual freedom to buy health insurance from any state - reforms we don't need to wait on the federal government to adopt in Pennsylvania.

For more analysis of McCain's plan, check out Michael Tanner's assessment on the Cato Daily Podcast and in an editorial.

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