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Joe Klein’s Ignorance of Tax Code

3 min readBy: Gerald Prante

It is frustrating that many reporters throughout this campaign continue to lack a basic understanding of the U.S. taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. system and tax policy in general, yet many report on it as if they hold CPAs or Ph.Ds. (See our discussion earlier this week about one media personality's economic "brilliance.")

Look no further than Joe Klein's blog post today saying that McCain's health care plan will raise people's taxes:

A new rule here: Rather than do the McCain campaign's bidding by wasting space on Senator Honor's daily lies and bilge–his constant attempts to divert attention from substantive issues–I'm going to assume that others will spend more than enough time on the sewage that Steve Schmidt is shoveling and, from now on, try to stick to the issues.

Today's issue: health insurance. John McCain wants to tax your employer-provided health care benefits. He wants to replace those benefits with an insufficient tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. –$2500 for individuals and $5000 for families (the average cost per family for health insurance is $12000).

There is a positive, progressive taxA progressive tax is one where the average tax burden increases with income. High-income families pay a disproportionate share of the tax burden, while low- and middle-income taxpayers shoulder a relatively small tax burden. aspect to this: wealthier people should have to pay for health insurance themselves, without tax breaks from the federal government.

But make no mistake: this plan will do little or nothing for those who do not have insurance now–unless they are young and healthy–and it may well hurt a fair number of workers, especially unionized workers, who get gold-plated benefits from their employers.

It will certainly do nothing for families with members who have pre-existing conditions or children with special needs–because it makes no provision to regulate the insurers, forcing them to cover all comers at "community" rates that don't discriminate against the people who need health insurance most.

It is amazing to me that Obama campaign has let things go this far without pointing out that McCain–who opposes the energy bill because it would increase taxes on oil companies–is actually proposing a tax increase on health care benefits for American workers. But that is precisely what the Senator from Arizona is doing.

Insufficient tax credit? Does Klein know how a tax credit works? He appears not to as he compares the $12,000 average family cost to the credit amount ($5,000). What he fails to understand is that the $5,000 value of the credit would be worth more than the current exclusion for almost any taxpayer. For example, a family in the 25% bracket would have its income tax before credits increase by .25 * 12,000 = $3,000. However, the family would be getting a $5,000 CREDIT that trumps the $3,000 extra in taxes from the elimination of the exclusion. Even for a family in the 35% bracket, the family having $12,000 in insurance would come out ahead. Over time, the value of the credit would decline assuming health care costs exceeded CPI-U (almost a guarantee) as I explained yesterday, but in the next five years especially, very few would see a tax hike, and most would get a tax cut.

Joe, learn the tax code and the difference between a tax exclusion and a tax credit before you report on tax matters.

Who else is spouting some of this nonsense on the web that doesn't recognize the difference between a credit and an exclusion? DailyKos, D.C. Examiner's Progressive Politics, Washington Monthly, Health Care Reform Now, and others.