"Adam O'Neill" at The Lowest Deep -- now enthusiastically included on the econ blog roll to the left -- is not so enthralled with the Cogan-Hubbard-Kessler proposal noted in my previous post. He has some qualms about how the numbers work out -- essentially a disagreement about how strong the cost-saving incentives are from an individual taxpayer/consumer's perspective. But, in addition, he has a major problem with the regressivity implied by the payroll tax implications of shifting from employer-financed expenditures to employee-financed expenditures. From his post:
...hidden in their plan is a 15 percent tax hike on health benefits for low income workers. Their plan makes insurance tax deductible (deductible from income taxes) rather than an exclusion from income (which makes it deductible from income taxes AND payroll taxes). 1) This would significantly reduce insurance offering at firms (firms would no longer have any direct reason to offer insurance) and 2) This makes the tax system more regressive because only individuals earning under $87,000 pay the social security payroll tax. They themselves peg this implicit low-income tax increase at a minimum of $8 billion a year ($8 billion from switching eliminating the payroll tax exclusion plus some fraction of the $11 billion of increased revenue from increases in take-home pay).
And he objects to Cogan ET Al's claim that "percentage tax reductions from detectability for low-income households are three to five times the size of reductions for high-income households." Says O'Neill:
The key is the phrase "percentage tax reductions." Of course a $1 tax break to someone making $10,000 a year is greater in percentage terms than a $10 tax break to someone making $200,000. One would like to think that health care spending would be measured in more absolute and egalitarian terms.
I have to give that one the Subjective Judgment Alert. Whether policy ought to be more "egalitarian" is not the sort of thing that economists can speak to with any degree of authority -- our training gives us absolutely no special status for making value judgments. Our training is, however, pretty useful for pointing out the trade-offs implied by any particular policy choice. On those grounds, i recommend this post as a useful addition to the conversation.
UPDATE: Yet more from Andrew, who lays out his case for eliminating the excludability of health insurance purchases from income and using the higher tax revenues to provide refundable tax credits to lower income households who purchase insurance.
UPDATE UPDATE: "Brilliant Deduction Revisited" and "Tax Policy for Health Insurance," follow-ups at the The Lowest Deep. And this, via Vox Baby, at Marginal Revolution.