Tax break? Not for me and maybe not for a whole lot of others

Senator Barack Obama took a swipe at a new tax policy being proposed by John McCain.

(CBS) It’s one of the most explosive and important political charges of the election: “He wants to tax your health benefits,” Barack Obama said.

Obama’s charge was that that John McCain wants to tax the health insurance benefits Americans buy through employers, CBS News correspondent Wyatt Andrews reports.

“That’s a $3.6 trillion tax potentially increase on middle class families,” Obama said. “That will eventually leave tens of millions of you paying higher taxes.”

John McCain wants a multi-trillion dollar tax on the middle class? Here are the facts.

Obama has the tax part correct, but the impact on the middle class is exaggerated – most people will see tax cuts.

McCain has proposed to end one of the largest tax breaks in the entire economy. Some 60 million Americans buy health insurance thru employers tax-free, and McCain would indeed begin to tax the value of the benefit.

However McCain also proposes to give the money back as a tax credit, $2,500 for individuals, $5,000 for families.

“Let’s give them a $5,000 refundable tax credit to go out and get the health insurance of their choice,” McCain said.

“It’s mostly a tax break,” said Len Burman of the Tax Policy Center.

The non-partisan tax policy center says except for the very richest Americans, most people buying insurance will see a tax cut.

I don’t say this all that often, but Obama has something right for a change.

My health insurance premiums, paid by my wife’s employer the Diocese of Palm Beach, run $117 a week. If there five paychecks in a month, the fifth has no premium paid. So we’re talking 48 weeks of premiums to be paid.

48 X 117.00= 5,616

5616-5,000= 516 more taxable income for me. The premiums for our health insurance increase every year as would the taxes we pay. Before some nut tells me the wife and I should go shop around for cheaper insurance, I’d remind them I’m battling Stage IV cancer at the moment. No insurer would ever sell me a policy.

Is what I’m paying out of line with other Americans? Read this from Kaiser Daily Health Policy Report.

Annual premiums for family coverage averaged $12,106 in 2007, with employees on average paying 28% of the cost, or $3,281.

$12,106- 3,281= $8825.

Bottom line- That isn’t any tax cut. Try again Senator McCain.

Hat tip- Andrew Sullivan who writes It’s a little complicated and Obama slips in that “potentially” to avoid a Palin-style lie, but it’s still clearly fear-mongering and unfair. Really Andrew? Review my calculations above. The tens of millions isn’t likely to be far off, if it is at all.

Update- A wizbang reader informed me this was a tax credit, not deduction. They’re correct and I made the mistake in the above. However is the McCain policy a good idea or not?

In exchange, he would give people a $2,500 tax credit for individuals who buy health insurance and a $5,000 tax credit for families that do so.

The tax credit could help people buy insurance through their employer. Many would also use it buy coverage directly from insurers in the individual market. They could select from insurers licensed in any state. With more competition, costs would fall and quality would increase, McCain reasons.

Analysts writing in the journal warned against that approach.

They said employers would be less likely to offer coverage if they knew their workers could get it elsewhere. In all, the authors projected that 20 million people would lose their employer-sponsored insurance under McCain’s plan, while 21 million people would gain coverage through the individual market _ little more than a wash.

The scenario of employers discontinuing health insurance coverage for some or all workers, because of the change I think is very real. Businesses are always looking at ways to cut expenses. Remember this also, if the formerly tax deductible premiums become taxable, that means their subject to SS and Medicare tax. Which employers pay half of.

The Knucklehead of the Day award