New Tax Proposals: Limiting the Employer-Provided Health Care Deduction

Yikes!  The New York Times reports that the President's tax advisory commission has been considering how to improve our tax system.  Yesterday they sent strong signals that it "would recommend limits in the popular tax deductions for mortgage interest and employer-provided health insurance."  The Times states,

In the case of employer-paid health insurance, the main proposal the panel discussed would limit tax-free premium payments to the average cost of the premium the government pays for federal workers. That is now about $11,000 a year for family coverage.

Under the current law, employers can deduct every penny they pay for health insurance for their workers, and the workers are not taxed on this benefit. The panel did not agree on whether the employers or employees would be taxed if a ceiling were imposed, but as a practical matter, there would probably be no difference.

The proposal the panel discussed would allow taxpayers whose employers did not provide health insurance to deduct the amount of the premiums they paid for themselves.

The main proponent of the health insurance proposal, Timothy J. Muris, a former chairman of the Federal Trade Commission and a law professor at George Mason University, said limitless tax-free health insurance premiums encouraged workers to demand and companies to offer overly generous insurance and resulted in increased health costs.

Mr. Muris said he did not know how much revenue his plan would raise. The Congressional Budget Office calculated this year that a limit of $3,720 in tax-exempt premiums for an individual and $8,640 for a family policy would raise $706 billion over 10 years.

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