The American Spectator

The Public Policy

Barack Obama is not being truthful about McCain's health care plan. McCain would provide a refundable tax credit of $5,000 to all families, and $2,500 for single workers, to be used to help buy health insurance. On October 4, Obama said in Newport News, VA, "Senator McCain would pay for his plan, in part, by taxing your health care benefits for the first time in history. And this tax would come out of your paycheck. But the new tax credit he is proposing? That wouldn't go to you. It would go directly to your insurance company -- not your bank account."

Obama here is practicing one of the Rules for Radicals he learned from the works of the openly socialist revolutionary Saul Alinsky during Obama's community organizer days: There is no need to be truthful when you are fighting for social justice. Make wild charges against your opponent and let him be stuck trying to explain the confusing details.

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McCain's Middle Class Health Tax Cut

UNDER THE McCAIN PLAN, if your employer pays for your health insurance, what the employer spends would be included in your taxable income. But then your family would get the $5,000 tax credit to offset any resulting tax. Suppose you are a middle class family in the 25% income tax bracket, and your employer pays $1,000 a month for your health insurance, $12,000 for the year. The resulting tax would be only $3,000, which would be more than covered by the $5,000 tax credit. So there would be no tax coming out of your paycheck due to the McCain plan. Moreover, quite contrary to Obama's nonsense, the tax credit would not only go to you to make sure you didn't pay any additional tax, but there would be $2,000 left over in this case that you could exactly put in your bank account, a Health Savings Account in fact. You could spend that on health care as well, perhaps for deductibles or co-payments, for example, or uncovered care. So you would come out ahead.

Indeed, you wouldn't suffer payment of any additional tax unless your employer paid over $20,000 a year for your health insurance. If your employer's health plan cost $20,100 a year, you would pay $25 in taxes in the 25% middle class tax bracket. You're not going to find too many middle class people whose employers are paying over $20,000 a year for their health insurance. In fact, under the McCain plan, no one with average cost employer provided health insurance would pay any additional tax, in any tax bracket.

Now suppose your employer doesn't pay for your health insurance. Obama said in that same October 4 speech: "A $5,000 tax credit. That sounds pretty good. But what Senator McCain doesn't tell you is that the average cost of a family health care plan these days is $12,680. So where would that leave you?" It would leave you $5,000 ahead of where you are today. You would have $5,000 you could use for the purchase of health insurance you don't have today. Is the taxpayer supposed to pay for all of your health insurance, regardless of your income or wealth?

Under current law, employer provided health insurance is tax free, resulting in a large effective subsidy that goes only to those who receive employer provided coverage, benefiting higher income people in higher tax brackets more than lower income people in lower tax brackets, who are also less likely to have employer insurance at all. What McCain is trying to do by replacing this system with his tax credits is spread that subsidy out to everyone, leaving the higher income people with the most generous health plans paying more than today, but everyone else with more money for health insurance, and, therefore, more likely to get coverage, sharply reducing the uninsured.

Suppose you are a highly paid executive in the top 35% income tax bracket (applying to families making over $357,700 a year), and your company pays for a very generous health plan for you costing $24,000 a year ($2,000 a month). The resulting tax would be $8,400, which, after the $5,000 tax credit, would leave a net tax increase for this rich family of $3,400. But as discussed above, the great majority of those with employer provided insurance, particularly the middle class and working people, would come out ahead on net. And if your employer doesn't provide coverage, then, again, your family would have $5,000 to help pay for health insurance that it doesn't have today.

Reading the mythology of the highly partisan, so-called mainstream press today, you could never imagine that the Republicans are advancing a health insurance reform plan that would leave the great majority coming out ahead, at the expense of high income workers. But, then, you would never know that the result of the Reagan and Bush tax cuts has been to abolish federal income taxes on the working class, and almost abolish them on the middle class, while leaving the top 1% paying 40% of income taxes, and the top 20% paying almost all of them.

But you just can't get the actual news reading the New York Times, or the Washington Post, or the L.A. Times, or the Boston Globe, nor watching NBC, CBS, ABC, CNBC, MSNBC, or CNN.

An American Health Care Safety Net

OBAMA TALKS AS IF there is no health care aid in America for people of modest means, saying in that same October 4 speech, "I know the outrage we all feel about the 45 million Americans who don't have health insurance -- kids who can't see a doctor when they are sick, parents cutting their pills and praying for the best, folks who wind up in the emergency room in the middle of the night because they've got nowhere else to turn." But we already have a huge program to pay for health care for the poor, Medicaid, already spending close to $350 billion per year. Moreover, this is one of the big entitlement programs projected to explode in future years, already likely to double as a percent of GDP by 2050. That will be like spending $700 billion on the program today.

America must have a safety net to pay for essential health care when people can't pay for it on their own. The public will not accept people suffering or even dying solely because they can't afford essential care. Besides Medicaid, all hospital emergency rooms are required by law to provide essential care regardless of ability to pay. We also spend $400 billion per year on Medicare to pay for health care for seniors.

But people can still fall through the cracks. We need a better structured safety net. Obama and his socialist cronies want to use this as an excuse for a complete government takeover of health care, with hundreds of billions each year in additional taxes and spending. But none of that is remotely necessary, and would end up hurting rather than helping most Americans, as discussed below.