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Bush health plan would boost govt. revenue

President Bush's health insurance proposals would cost taxpayers $526 billion through 2017, according to a preliminary estimate from Congress' Joint Committee on Taxation.
/ Source: The Associated Press

President Bush's health insurance proposals would cost taxpayers $526 billion through 2017, according to a preliminary estimate from Congress' Joint Committee on Taxation.

One Democratic lawmaker jumped on the figure Tuesday to describe the proposal as a tax increase. The projection, which comes from the committee's nonpartisan staff, is stunningly different from the administration's estimates as well as those from other independent analysts.

The White House says the changes the president seeks in the tax code are revenue-neutral over 10 years, meaning the changes would have little impact on the deficit during that time frame.

Taxable insurance benefits
Bush's plan would do two things: For the first time, the cost of an insurance policy would be treated as taxable income. The cost includes both the employer's and the employee's payments. The result is that workers' taxable wages would shoot up dramatically.

But then the president calls for a standard tax deduction for those who buy health insurance - $15,000 for family coverage and $7,500 for individual coverage. As a result, consumers who keep the cost of their policy below the size of the new deduction would get a tax cut.

The proposal is designed to slow the cost of health insurance coverage and, at the same time, give people who buy insurance on their own the same tax break as those who get it through employer-sponsored plans.

The changes wouldn't go into effect until fiscal year 2009. At first, the changes would result in less money coming into the Treasury. But that would change beginning in 2011, according to the staff of the Joint Committee on Taxation. By 2017, the change would increase revenues by $148 billion for that year.

The committee is charged with monitoring federal tax policy and estimating the impact of proposed changes. Members of Congress and their staffs rely on the committee's staff to provide objective and confidential technical analysis on tax legislation.

Revenue neutral plan?
Rep. Pete Stark, D-Calif., a harsh critic of the president's plan, said he has talked to the committee's staff and it is reassessing assumptions.

"He doesn't like tax increases," Stark said, referring to Bush. "This is sure as heck a tax increase."

John Sheils and Randy Haught of the Lewin Group, a consulting firm, recently estimated that the president's health insurance plan would reduce taxes by $108.5 billion through 2017.

The program brings in more revenue in later years because health insurance premiums will increase at a faster rate than the standard deduction.

Tony Fratto, a White House spokesman, said the president's proposal was designed to be revenue neutral. The proposal used a Treasury Department model that showed how much the standard deduction needed to be to accomplish that objective, he said.

"While we haven't see the report from the Joint Committee on Taxation, we look forward to hearing from Congress on this key aspect of the plan," Fratto said. "We would want to work with Congress to ensure the policy is revenue neutral."

Analysts say that the tax break that now exists for health care promotes more spending. The tax-free benefit gives people an incentive to purchase the most comprehensive policies available.

The administration says that the tax change would slow health costs because people would look for cheaper insurance so that they can get a tax cut.

Analysts say that different assumptions on how much insurance costs would slow are likely behind the difference in estimates.

The administration likely anticipated slower growth in health insurance premiums than the committee assumed, though just how much slower is unclear. Committee staff declined to comment on the analysis.