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RE: 'Tax Break?' - Straight Talk

Bill Jempty has a point questioning whether McCain's plan regarding taxing health benefits and then refunding some amount is a tax break or not. Let's hone in on the heart of the matter and remove all complications. Pay attention here.

McCain has proposed to end one of the largest tax breaks in the entire economy. Some 60 million Americans buy health insurance thru employers tax-free, and McCain would indeed begin to tax the value of the benefit.

However McCain also proposes to give the money back as a tax credit, $2,500 for individuals, $5,000 for families.

"Let's give them a $5,000 refundable tax credit to go out and get the health insurance of their choice," McCain said.

Let's cut to the chase.

When the government takes your money first, then decides to give some of it back (sans interest), this is little more than a shell game with your money. "First I'll take it. Then, I'll give it back. Cool, huh?" No. Uncool.

The problem here is no different than the problem Nancy Pelosi has with the term "incentives," where she deems taking more taxes from energy companies is an incentive to produce alternative sources of energy. Well, it's not the same in that she never intends to see the money back to its original source.

Regarding McCain's proposal (as I understand it), if the government is going to take your money, it should not be portrayed as benevolence when it returns a portion of it. One too-simple concept might be to not take it in the first place.

But the issue at hand is governmental control. With the McCain tax proposal at issue here, the government is deciding what you will do with your money - a "refundable tax credit" for the express purpose of purchasing health care.

Further, if the "credit" is indeed intended to be a flat "$2,500 for individuals, $5,000 for families," this is hardly more than income redistribution under the moniker of a "tax break." I am not opposed to programs that assist the needy. We, in fact, have quite a few massive ones already in place. But for heaven's sake, at least call it what it is.

I have no idea yet how such a plan would effect my family, whether positively or negatively or to what degree. Less than 4 minutes with my records will reveal easily enough. But the argument here is on principle alone.

  1. If the "tax credit" is flat, call it what it is: Redistribution.
  2. If it is not, stop taking our money only to then give it back to us with usage restrictions and calling this practice at "tax break."

Straight talk, please.

But of course, the alternative is the economy-breaking Obama alternative of wholly nationalized health care - so that we can ostensibly compete with Cuba. Pardon while I politely pass on Option B, with objections to the apparent Option A.

UPDATE: Please see RE: RE: 'Tax Break?' (Thank you, Sabba.)


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Comments (9)

"If the "tax credit" is... (Below threshold)
marc:

"If the "tax credit" is flat, call it what it is: Redistribution"

Steve while I agree with your overall assessment, option a is the best way forward I find it a bit amusing McCain, yourself and Biden find common ground:

"We want to take money and put it back in the pocket of middle-class people," Biden said. Of those who would pay more, he said: "It's time to be patriotic ... time to jump in, time to be part of the deal, time to help get America out of the rut."
Classic income redistribution.

Of course what Biden, and ObamaMessiah always and fore ever will fail to mention is any tax increases given to businesses will with all certainty be passed along to those buying the companies products and services.

I'll still take option A ov... (Below threshold)
Chip:

I'll still take option A over B as well Steve, with the same objections,

Clarification:Opti... (Below threshold)
Steve Schippert:

Clarification:

Option A: Nationalized healthcare

Option B: McCain Tax Credit Plan

I have little common ground with Biden.

The thing is that Conservatives (Capital C) allow themselves to be pigeonholed as uncaring, greedy bastards with no compassion by ceding arguments. We are not.

But let's not conflate massive tax burdens with patriotism. Let's also not wholly defer to the Federal government assistance of, to and for the less fortunate. It is an individual and family responsibility, and we are far more efficient and responsive than any government bureaucracy I have ever witnessed.

Liberals believe conservatives unwilling to do this without living a day, week or month in our households. And many - though not all - have the honorable intent of helping the needy first. (Others' intent is to seize government and legislate all conduct and assume to role of sole benevolent.)

Conservatives reject the confiscatory scale and expansion/empowerment of the already-massive federal government in the programs proffered.

But when we do this, we fail to articulate the personal nature of said responsibilities to our own communities' needs. Thus, the pigeon hole.

Reject ballooning of government, but also do the right thing. Even when no one's looking.

"But the issue at hand is g... (Below threshold)
LaMedusa:

"But the issue at hand is governmental control."

Absolutely. With an earlier suggestion on this blog in the comment section that the government sugardaddy loan to Fannie Mae/Freddie Mac moving toward socialism. Who actually saw this demise coming with the need for a "bailout"? Perhaps the guy with his biggest hand in it.

Yeah that too Steve, I'll t... (Below threshold)
Chip:

Yeah that too Steve, I'll take the McCain option.

The way I read it was that ... (Below threshold)

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.

Now that makes sense... (Below threshold)
Steve Schippert:

Now that makes sense, Sabba. Thank you for commenting.

The wheels come off my reactionary wagon if in fact the Federal Government is not taking first then returning in the manner I suggested.

Here is a concern, however:

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

In that event, the taxpayer has now laid out %7,500, less the $5,000 in return (and of course whatever the added $1k coverage benefits provide). For larger families or existing conditions which will both increase the insurance coverage rates, they lose.

Also, while the freedom of choice is a significant added benefit, the government will be essentially putting a baseline price target on free market care, as providers will potentially strive to hit the government's credit mark.

I think your interpretation is quite correct in any event.

Thanks again for putting the wheels on my wagon, Sabba.

Ummm, don't forget S... (Below threshold)
Larry:


Ummm, don't forget SS taxes, which throws a wrench into the math. Keep in mind that the definition is: "Refundable or non-wastable tax credits can reduce the tax owed below zero, and result in a net payment to the taxpayer beyond their own payments into the tax system, appearing to be a moderate form of negative income tax." This from Wiki. . .

Here is an example:

Employee has been paying $1,000 a month as his contribution with an employer paying, say another $800.00. Part of that is insurance of various types and part is medical/dental. Suppose that this is reduced to $1,000 for the sake of easy numbers split between $400 for the employer and $500.00 for the employee.

Between the employee and employer, an additional $153.00 per month is due for SS taxes and Medicare is another $58.00, split between employee and employer. So, the government gets $211.00 off the top, split between employee and employer.

I keep trying to run the numbers and my eyes glaze over. Between cooking dinner for the kids, corraling dogs, answering the phone, etc., I give up until tomorrow.

"When the government tak... (Below threshold)

"When the government takes your money first, then decides to give some of it back (sans interest), this is little more than a shell game with your money. "First I'll take it. Then, I'll give it back. Cool, huh?" No. Uncool."

"Uncool" is right. Just as I heard McCain's opponent say just recently that he wanted to "take money and put it back in the pockets" of middle class families. I thought, Wow! What a novel idea!




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