McCain Adviser Doesn’t Understand John McCain’s Health Care Tax Plan

September 19, 2008

I've documented over the past few weeks how many Obama supporters are misleading the general public as it relates to Sen. McCain's proposed health care tax plan. They argue it is a tax hike, when on net over the next ten years, it is a huge tax cut. It's rather bizarre. The Obama supporters like David Cutler and Brad DeLong in a WSJ editorial called it a tax hike. Maybe Cutler and DeLong are Lafferites now and believe that a tax hike lowers revenue. What else can it be? McCain's plan that is set to lower revenue by $1.3 trillion over the next 10 years is called a tax hike by Cutler and DeLong. I don't think Cutler and DeLong are that stupid. I think it's just the typical campaign dishonesty.

And that gets me to Carly Fiorina (a McCain adviser who has ran into some gaffes throughout this campaign) who had this exchange with CBS News: Does McCain's plan tax employer-provided health benefits?

Carly Fiorina: It doesn't tax employer-provided health benefits. It gives employees a choice. An employee can choose to continue to receive employer-provided health care–or if an employee is, for example, not covered by an employer plan, or they change jobs, they are able to receive a $5000 tax credit, which allows them to purchase their own health insurance.

The first sentence is basically just an outright lie or Fiorina appears not to understand the McCain plan at all. McCain's plan does subject employer-provided health benefits to the income tax. He is eliminating the exclusion, a policy change some economists on both the left and right have called for for years. It is Haig-Simons income, isn't it? (There's a reason BEA counts it as compensation and includes it in personal income and in the income approach to GDP.)

Now Fiorina doesn't understand that those who remain covered by an employer under McCain's plan would have his/her health benefits taxed (in the income tax only, not the payroll tax), but that person in a family would be eligibile for a $5,000 refundable credit ($2,500 for singles). Now for most families whose coverage remains with the employer, the value of that credit would exceed the extra tax on the health benefits. (This is where many on the left have misled the public on McCain's plan.) But the health benefits are taxed. It's just not a net tax increase for most families in the next 5-10 years.

Fiorina is right as it relates to the latter half of her statement: those who are not covered (or are dropped) can receive the $5,000 credit as well, which eliminates a current inequity in the tax system.

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