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Tuesday, September 16, 2008

The McCain/Palin tax increase on the middle class
Posted by Jill | 6:25 AM
You know those friends you have who are thinking they'll vote for John McCain because he's a white guy, or because they're more familiar with him, or because they think Sarah Palin is hot and they want to fantasize about having sex with her, or because they have some idea in their heads that he's the guy he used to be before he became blinded by his lust for the presidency? I wonder what those friends would say if you told them around the watercooler (assuming you still have a watercooler at which to gather) that John McCain wants to raise the taxes the middle class pays in order to finance more tax cuts for the very people who brought down Lehman Brothers and Merrill Lynch and who may very well bring down AIG and Washington Mutual.

They won't believe you because they haven't heard about it on the evening news. But that's exactly what McCain has in mind. But he's no fool; he won't do it by raising the tax rates. He's going to do it by eliminating a tax break that most people who receive health insurance through their employers don't even think about -- if they even know it exists.

Many of us pay the employee share of our medical premiums with pre-tax dollars so that our taxable income is lowered by the amount of our premiums. If McCain wanted to stop this practice alone, that would be bad enough. But it goes beyond that. His "health care plan" would also treat the employer share of your health insurance premium as income on which you would pay taxes.

I just received my COBRA statement from my previous employer. The premium on my health plan from said employer is just over $1100/month for family coverage. When I was employed, I paid about $300 of that per month. Under John McCain's plan, that approximately $13,000 cost of the health insurance plan would become taxable income.

Let's say you are single, and your taxable income after deductions and exemptions is $32,000/year -- not an unreasonable assumption for many working Americans who do not live in major metropolitan areas. Under John McCain's "health plan", your taxable income, if you had this insurance plan, would now be $45,000. So instead of paying about $4400 in Federal income tax in the 15% bracket (10% of the first $8025 and 15% of the rest, so his actual tax percentage is 13.75%), you would now be in the 25% bracket, and your Federal income tax liability would be $7594 (25% of the amount over $32,550 plus $4,481.25).

Now let's take a higher-paid worker with the same plan; say, someone with a taxable income of $150,000/year. He's currently paying $35,978 in Federal income tax (24% as an actual tax percentage. Under John McCain's "health plan", his taxable income is now $163,000. He just manages to squeak in under the $164,550 limit to the 28% bracket, so he isn't bumped into a higher tax bracket. His Federal income tax is now $39,618 -- a jump of $3640.

McCain's "health plan" proposes giving these workers a $2500 tax credit to "help pay for the cost of health care", which drops the tax increase on the $32,000 worker to $694. But that worker is still paying 2.1% more in taxes because the cost of the plan is now counted as part of income. For the $150,000 worker, this credit drops the tax increase to $1140 -- an 0.7% tax increase.

So John McCain's "health plan" is really nothing more than a huge tax increase on the middle class. The higher your income, the less of a tax bite you receive from having your health insurance premiums counted as income.

And that's assuming your employer decides to keep providing health insurance. If your employer does not, since you now have this nice tax credit to help you buy insurance on the open market, then you have $2500 with which to buy a policy -- if you can get one -- that has a GROUP rate of $13,000. Buying a comparable policy as an individual would cost significantly more. Group rates reflect shared risk, while individual policy premiums are based on your own health history. If you smoke, or you are overweight (whether that has adversely affected your health or not), or if you have a family history of heart disease, diabetes or cancer; if you yourself have had a costly illness -- all of this would raise your premiums. So even if you COULD purchase the same policy as you currently receive through your employer, you would pay a great deal more for it out of pocket. And that's assuming you can get a policy at all.

How does spending around $13,000 out of pocket every year (after your "tax credit" from John McCain) for health insurance sound? If you make $150,000/year, perhaps you can afford it. If your taxable income is $32,000/year, what are you going to give up so that you can pay 40% of that income for insurance?

But that is what John McCain hopes to do with the health insurance system in this country.

Bob Herbert:
The whole idea of the McCain plan is to get families out of employer-paid health coverage and into the health insurance marketplace, where naked competition is supposed to take care of all ills. (We’re seeing in the Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers and Merrill Lynch fiascos just how well the unfettered marketplace has been working.)

Taxing employer-paid health benefits is the first step in this transition, the equivalent of injecting poison into the system. It’s the beginning of the end.

When younger, healthier workers start seeing additional taxes taken out of their paychecks, some (perhaps many) will opt out of the employer-based plans — either to buy cheaper insurance on their own or to go without coverage.

That will leave employers with a pool of older, less healthy workers to cover. That coverage will necessarily be more expensive, which will encourage more and more employers to give up on the idea of providing coverage at all.

The upshot is that many more Americans — millions more — will find themselves on their own in the bewildering and often treacherous health insurance marketplace. As Senator McCain has said: “I believe the key to real reform is to restore control over our health care system to the patients themselves.”

Yet another radical element of McCain’s plan is his proposal to undermine state health insurance regulations by allowing consumers to buy insurance from sellers anywhere in the country. So a requirement in one state that insurers cover, for example, vaccinations, or annual physicals, or breast examinations, would essentially be meaningless.

In a refrain we’ve heard many times in recent years, Mr. McCain said he is committed to ridding the market of these “needless and costly” insurance regulations.

This entire McCain health insurance transformation is right out of the right-wing Republicans’ ideological playbook: fewer regulations; let the market decide; and send unsophisticated consumers into the crucible alone.

You would think that with some of the most venerable houses on Wall Street crumbling like sand castles right before our eyes, we’d be a little wary about spreading this toxic formula even further into the health care system.

But we’re not even paying much attention.

Nope. Because we're too busy worrying about whether that Uppity Negro (sic) man was "disrespectful" to the Flower of White Wimminhood™ or whether if she's elected what our chances would be to get her in the sack.

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Anonymous Anonymous said...
That's - I mean - positively diabolical. I don't even know what to say about a cancer patient who would do that to the rest of us.

Anonymous Anonymous said...
While your analysis is doubtless dead on, it's WAY over the head of the "average" American [remember, 1/2 of all Americans have an IQ BELOW average] who probably doesn't even notice the "$300" health care deduction. It just kinda goes away from their paycheck like taxes! Your analysis also requires "advanced" math skills -- like being able to add without a calculator, or even the ability to USE a calculator.
And how many do you think actually understand the "tax code"?

The "average" American is going to say: "McCain is a Republican. Republicans don't raise taxes. Ergo, I'll vote for McCain."

FWIW, I'm an independent computer consultant. Wife and I pay just under $14000 for our "small group" health policy purchased through my LLC. As a business expense it's fully deductible to me [not so if you're "salaried"]. In my tax bracket the deduction is probably worth just slightly more that the proposed $2500 credit would be. Will the McCain plan remove my deduction? Thus "increasing" my taxes?

Anonymous Anonymous said...
McCain has NEVER paid for his own health care. So what does he care?

It's almost certain that he would be UNinsurable privately [multiple cancers, physical disability, and whatever undisclosed conditions, ....]. But then, ... see my first sentence...

Anonymous Anonymous said...
You know those friends you have who are thinking they'll vote for John McCain because he's a white guy

Can't hide your racist ignorance.

Anonymous Anonymous said...
ted, it means nothing that the candidate has never paid his own insurance. That statement is meaningless, at least in relation to what I said. I'll rephrase: what kind of human being suffers an affliction and doesn't see the benefit other human beings derive from treatment?

Now that I've written the description that way I see that it's the same person who was tortured and now thinks torture is hunky dory.

Anonymous Anonymous said...
McCain will give 2500 for individuals and 5000 for families as a 'tax credit'. You show me where you can get an individual or family policy for either amount? I have ms and when I was self-employed, I could only get a policy in the state I lived in at the time, Massachusetts, because it mandated coverage. However, the cost was, I kid you not, just for me, over 2500 a month. When I moved to Tennessee, I discovered that TN has no such mandate and I could not get insurance. Period.

The dirty little secret here is that without mandatory coverage, only the health will get coverage. The rest will get unaffordable coverage or no coverage at all.

But, as some repubs I know would say, that is too frickin' bad, boo-hoo. Go away and die so I can have more money.

Anonymous Anonymous said...
You are assuming a normal, caring, sympathetic human type person.

My response never suggested for one minute that we are talking about one of those. And your comment suggests you know that.

We are talking here about a psychotic, narcissistic, and likely very demented somewhat non-human. I can say that without fear of contradiction because
1) - he/it is a POLITICIAN and
2) - he/it is a POLITICIAN.

Wash, rinse, repeat!

As a far aside:
I recently had a job interview during which I suggested that if it were an issue I would waive my corporate provided health insurance and keep my own [never know when you will be laid off and you can NEVER be assured of getting back a private policy!!]. Yes, they offered an "opt out". They would give me a $2000 yearly credit, paid equally over 52 weeks. They insisted that was what they paid for employee health insurance..
I wonder how good that policy was...

Blogger Jill said...
Ted, it's not unusual for companies to do that. The place I worked until recently offered $1200 to workers who would drop the insurance and get it from a spouse's plan or some such. They weren't claiming that's what it cost; they were very open about what it cost via a "total compensation" statement that came out every year. But it was an incentive to not double-insure.