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RE: RE: 'Tax Break?'

Reader Sabba Hillel commented on the earlier post on John McCain's tax proposal that deserves a post of its own. She does an excellent job of putting the wheels back on my wagon.

The way I read it was that instead of having your employer take money from your paycheck and use it (tax free) for your health care, you would choose your own health care and get a tax credit for whatever it cost.

In the case of your employer taking and using the money, it is the equivalent of making the cost of the policy a deduction (from your net taxable income).

In the case of a tax credit, you would calculate the tax that you owe on the total income and then subtract to complete amount that you paid for health care from that amount. In actuality, you are getting more than you would have otherwise.

In the first (currrent) case, you save whatever percent the "extra" would have added to your net income, besides, possibly being put in a lower tax bracket. In the second case, your tax is reduced by the full amount of you premium, which gives it the effect of a much larger deduction.

For example, in the 25% tax bracket (for ease of arithmetic), a $5,000 premium reduces your calculated tax by $1,250.00 In the case of a tax credit, the credit acts as if you received a $20,000 deduction (using the same 25% tax bracket).

Thus, the second case would actually have to pay $3,750 less in taxes. The devil is in the details. how much of the actual premium would the tax credit offset.

In the case of a $6,000 premium, your calculated tax would be increased by $1,500 and you would get back $5,000.

Each $1,000 more of premium would subtract $250 from the difference.

Thus, most people would wind up ahead. Additionally, you would be able to choose a health care plan that would go along with you and not have to depend on what your employer chooses to offer.

And Sabba Hillel's almost certainly spot on.

I've been writing forever and blogging for years. And, when it comes to issues of national security, terrorism and military affairs, I have learned a few lessons of pause and reason. But, as my initial post shows, sometimes in the hyper-passionate arena of politics, perhaps those lessons are not always applied as learned.

Thank you, Sabba, for putting the wheels back on my wagon when they seem to have flown off. It was an instance where my firmly held principles were aggressively applied in dissent when there was not quite the transgression initially perceived.

With apologies to readers and Senator McCain.


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Comments (2)

SteveAnd an hour a... (Below threshold)
Larry:

Steve

And an hour and twenty minutes later, I pointed out that social security and medicate taxes altered the equation. I guess you could say it is complicated.

Kudos to you Steve for bein... (Below threshold)
Scottie Author Profile Page:

Kudos to you Steve for being open minded enough to withstand the correction.

Now if we could just get Bill O'Reilly to listen to the experts on the economics of the oil industry with the same open mind. Cavuto? Shouted Down! Ben Stein? Shouted down! Wayne Rodgers? Shouted down! The guy is impervious. But that he would follow your civil example.




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