The McCain/Palin tax increase on the middle class

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.