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NOT MY TAX CREDIT

July 9, 2017

 

The tax code is convoluted, inconsistent, incoherent and inequitable.  Nobody would argue with that.  The question is how do we fix it.  The answer may require us to understand how we got here in the first place. 

 

As an example, lets look at how the tax code treats health insurance premiums (even before Obamacare). If you work for a company and your company pays your insurance premium (or part of it), that payment is not counted as part of your compensation and is therefore not taxed.  So if your employer pays $60,000 salary and $20,000 premiums, you only pay tax on $60,000.  By contrast, the self-employed don't get a tax exclusion for the earnings they use to buy health insurance. So if you earn $80,000 and pay out $20,000 for insurance, you still pay tax on all $80,000. 

 

The tax code is, in this case, inconsistent and inequitable.  Over time, as constituents have complained, the provision has been amended in bits and pieces several times to qualify additional little groups of people for the tax benefit, but still not everyone.  That is how we created an unnecessarily convoluted tax code which is inequitable. 

 

Historical context: the tax credit for employer-provided health insurance was a loophole created during World War II for convoluted reasons.  Seven decades later, in a completely different economy, it's still here - for no reason.

 

Resources:

 

Bartlett, Bruce, The Benefit And The Burden, Simon & Schuster, January 24, 2012

 

Mettler,Suzanne, 20,000 Leagues Under the State , Washington Monthly, August 2011

 

Gruber, Jonathan, "The Tax Exclusion For Employer-Sponsored Health Insurance", National Bureau of Economic Research, February 2010

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