Obama

Tax increases for health care in ’13 may be just a start for U.S. workers

by Ricardo Alonso-Zaldicar-Associated Press, Washington Times  |  published on December 26, 2012


New taxes are coming Jan. 1 to help finance President Obama’s health care overhaul. Most people may not notice. But they will pay attention if Congress decides to start taxing employer-sponsored health insurance, one of the options in play if lawmakers can ever agree on a budget deal to reduce the federal deficit.

The tax hikes already on the books, taking effect in 2013, fall mainly on people who make lots of money and on the health care industry. But about half of Americans benefit from the tax-free status of employer health insurance. Workers pay no income or payroll taxes on what their employer contributes for health insurance, and in most cases on their own share of premiums as well.

It’s the single biggest tax break allowed by the government, outstripping the mortgage interest deduction, the deduction for charitable giving and other better-known benefits. If the value of job-based health insurance were taxed as regular income, it would raise nearly $150 billion in revenue in 2013, according to congressional estimates. By comparison, wiping away the mortgage interest deduction would bring in about $90 billion.

“If you are looking to raise revenue to pay for tax reform, that is the biggest pot of money of all,” said Martin Sullivan, chief economist with Tax Analysts, a nonpartisan publisher of tax information.

It is hard to see how lawmakers can avoid touching health insurance if they want to eliminate loopholes and curtail deductions so as to raise revenue and lower tax rates. Congress probably wouldn’t do away with the health care tax break, but would limit it in some form. Such limits could be keyed to the cost of a particular health insurance plan, the income level of taxpayers, or a combination.

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