The Obama administration shocked a lot of people — including this author — when an advisor announced Sunday that taxing medical insurance benefits is on the table as part of its so-called “health care reform” initiative. White House Open to New Tax on Health Benefits [washingtonpost.com]. The explanation, namely that everything is negotiable, rings very hollow. Obama campaigned hard on a pledge that anyone earning less than $250,000 would not see a tax increase under his health care reform proposal. Indeed, this was a central point during the debates in differentiating Obama from John McCain and painting a picture of a candidate more in touch with the concerns of everyday Americans.
Part of the real explanation, of course, is that to avoid (correct) charges of budget-busting, the Obama administration needs to craft a more “revenue-neutral” plan, and thus really needs the incremental revenue from such taxes. But from my vantage point, this is both opportunistic and cynical. Why should insurance proceeds, used to defray health care expenses, be taxed when for almost all taxpayers, insurance premiums are not tax deductible? This makes no sense from a tax fairness or financial perspective. To paraphrase a famous Ronald Reagan quip from New Hampshire in 1980, “we paid for those health benefits, Mr. Obama!”