A Blueprint for Health Care Reform: Priority No. 4 - No Taxation on Health Benefits for Working Fami

Taxing health care benefits would result in a huge new tax on the middle class and on responsible employers that already provide coverage. It would penalize those who already have insurance and would result in many workers losing their coverage.

For more than 50 years, employer-provided health care benefits have not been taxed. This has been a deliberate public policy to encourage employers to provide health care coverage. Taxing health care benefits will encourage employers to drop health care coverage at a time when we are pursuing health care reform that will build on our current employer-provided system.

CWA, other unions and our health care reform allies strongly oppose efforts to include the value of employer-provided health benefits as part of workers' and employers' taxable income. Depending on the specifics of the approach, this move could cost workers and employers $1 trillion over four years, including $196 billion in additional income and payroll taxes for workers and another $51 billion paid by employers through the payroll tax. For the average middle-class family, that would amount to a tax hike of as much as $4,000 a year, or more, according to the Joint Committee on Taxation.

Because of the added tax burden — on average 30 percent more in taxes, according to the Congressional Budget Office — many employers could drop coverage altogether, reduce benefits or attempt to shift more costs onto workers.

There are better alternatives to raise the revenue needed for health care reform.

President Obama proposed raising $634 billion over ten years by negotiating lower drug prices and cutting payments to private insurers in the Medicare program (the so-called Medicare Advantage plan, which is a subsidy to private insurance companies). He also proposed a modest tax increase on families earning more than $500,000 a year and individuals earning more than $250,000.

Citizens for Tax Justice, a progressive think tank, proposes several tax reform options that together could raise $1 trillion over 10 years. They include a Medicare tax on non-wage income of the wealthy, increasing the capital gains tax from 20 percent to 28 percent; and reducing tax incentives to invest offshore.