September 18, 2008
McCain Health Credit Could Give Coverage to a Third or More of Uninsured
Low-Income Workers Would Benefit Most from GOP Presidential Candidate's Proposal
Washington, DC, September 15, 2008 - A new Tax Foundation study shows John McCain's pitch to replace a tax subsidy that favors high-income people with a refundable credit that favors low- and middle-income people would cover a third or more of Americans that are uninsured, leading to a net tax cut for most taxpayers.
In Tax Foundation Fiscal Fact No. 144, "McCain's Health Credit: The Intersection of Health Policy and Tax Policy," Tax Foundation Vice President for Economic Policy Robert Carroll, Ph.D., explains that the Republican presidential nominee's proposal to replace the current income tax exclusion for employer-based insurance with a large health tax credit—$5,000 for family coverage and $2,500 for individual coverage—would sharply reduce tax-driven biases in America's health care system.
Because people would receive the full credit even if the insurance cost less, the proposal simultaneously provides a powerful incentive to purchase insurance and to purchase an amount of insurance without regard to income tax considerations," says Carroll. "Less generous proposals have already been estimated to decrease the number of uninsured by over 15 million, so the McCain health credit would probably decrease the number of uninsured from the current 45 million to 30 million and probably much lower."
Carroll points out that while a good deal of the current $300 billion to $400 billion tax subsidy is channeled to middle- and high-income taxpayers, the fixed amount in the McCain health credit is worth the same regardless of a person's income, and therefore channels much more of the benefit to low- and moderate-income taxpayers.
"The McCain credit is therefore a much more progressive policy than the current tax treatment," Carroll states. "The proposal is a net tax cut for most taxpayers because the new health credit exceeds the value of the existing income tax exclusion. The generous credit provides a powerful incentive to purchase health insurance."
Carroll does point to a few potential downsides to the plan. The health credit would exceed the revenue from the repeal of the tax exclusion for employer-based health insurance, and would increase marginal tax rates for some taxpayers because the employer-based insurance premiums becoming taxable would move some taxpayers into higher tax brackets. But Carroll argues that the downside of the policy needs to be contrasted with the improved incentives the policy provides for health care markets.
"The improved efficiency that should result from the McCain credit, combined with a powerful incentive to purchase health insurance and a beneficial effect for low-income people, would seem to make this policy particularly attractive to both sides of the political spectrum," Carroll argues. "Few government programs kill two birds with one stone, but the McCain health credit seems to be one that could."
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The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
To schedule an interview to discuss Sen. McCain's health tax credit proposal, or any of the candidates' tax plans, please contact Matt Moon, the Tax Foundation's Manager of Media Relations, at (202) 464-5102.
