Thursday, February 22


“Under the President’s proposal health insurance BENEFITS would be taxable income….” The author meant to say “health insurance PREMIUMS.”

It’s a terrible error since it makes the impact sound huge. And crazy!

The value of benefits is often many times larger than the premiums that secured them. In W’s new scheme, all premiums paid would have to be declared income on everybody’s tax returns.

Since very ill persons usually have extremely high health insurance premiums, their premiums are often paid in part by government agencies or others. Without some sort of “safety net” in place, they could end up being chased by the IRS for unpaid taxes. Pensions, tax refunds (!), and other government payments to individuals could be seized to pay their back taxes. And this creates a bad credit score (from unfair Isaac) that could render many unemployable.

One of my friends pays about $2,000 each month in health insurance premiums. She has a long history of cancer and other dread diseases. Bush’s proposal would leave her paying tax on the $16,500 premiums beyond the $7,500 standard deduction. Essentially, she is being taxed for becoming sick!

Under current law she could deduct the premiums as itemized deductions (over 7.5%of her AGI), but W has remained silent on this aspect of his new tax proposal. What about Medicaid? Tricare? Worker’s Compensation? Unemployment related to illness? Family Leave? Will we have to report all “constructive” premiums?

What do we call this new deduction? Also, what is the value of premiums for Medicare part A or Medicare part B beyond what is currently paid for? Bush says these are “yet to be determined.”

Shouldn’t we insure that any modifications to our health care system keep or increase, not decrease as W has suggested, what already exists at current levels?

“Monkeying” with the income tax system has become so complex that even W’s economists and those journalists covering them have failed to spell out the crucial implications. Truly, these are direct matters of life and death.

We could replace income tax benefits through direct grants, except, of course, for religious contributions (which have violated the constitutional separation of church and state provisions for decades).

Before any decisions are made, the ramifications must be known. These and other issues first need to be considered and fully addressed before we act. We complicate tax law by piling on rules upon rules without understanding them. With our tax system, it just never ends!

W’s proposal is the best argument yet to replace personal income tax. Perhaps with a “flat” tax, like the Japanese, or a VAT tax, like our European compatriot’s, we could integrate the costs of health care in a Canadian-style system that covers everyone. There is a better way!

Charles H. Copeland
Retired COO
IRS Brookhaven Center