• Quote: Another interpretation of the employer-sponsored health insurance tax subsidy

    Redistributive public policy is even more of a theme in the group health insurance market, which is nine times larger than the individual market and the dominant source of “private” health coverage. The government massively subsidizes this market by excluding employer-provided health benefits from income and payroll taxes. Federal tax advantages for health insurance add up to $300 billion a year.

    These tax subsidies are highly coercive. Take a family with salary income of $60,000 and a health plan worth $15,000. If this family instead took all of its income as $75,000 in cash salary, it would face an income and payroll tax hit of around $4,500, or about 6% of its income. For comparison, the individual mandate penalty in Obamacare will be limited to 2.5% of income.

    Josh Barro, Business Insider

    @afrakt (via phone)

    • Status quo bias is difficult to overcome, but it’s possible. Consider Josh Barro.

    • Yes PPACA should have ended the tax deduction for health insurance. The failure to end it is evidence of the corruption of our politicians, not just todays politicians but those who did not end it in the past.

      It is the right thing to do but it costs votes and politicians are corrupted by the strong desire to win (I really do not so much blame them so much because I have been in similar situations and the desire to win in strong but we should never honor politicians). The only chance we have is to educate the rationally ignorant voters. We should be shouting for this and strongly criticizing politicians that refuse to end the tax deduction.

      The subsidy mainly goes to waste and to providers, less so those with higher cost health insurance. One might argue that it benefits those in higher tax brackets but progressivity is votes on and the politicians know of the break so without the break the tax rates might be less progressive. The bigger distortions are in other areas.

    • what kind/amount of tax subsidy do you recommend we give to employers to pay their employees that extra $15,000 in cash?

      • The same one they get now: the ability to write off those costs as business expenses (which they are).