A Tax Break for the Rich that Obama Apparently Likes

You would think that a president who spends two years with two overriding policy objectives — higher taxes on the rich and health reform — would be on top of health tax breaks for the rich as fast as a blue jay on a June bug. You would be wrong.

Barack Obama spent millions on TV ads attacking John McCain for proposing to limit health tax subsidies for the rich in order to create new subsidies for the poor. Only reluctantly did he accept limits on these tax subsidies in the health reform act last spring. And even they don’t kick in for seven more years. Ironically, the staunchest defenders of the health tax status quo are congressional Democrats and labor unions.

So what are we talking about? Answer below the fold.

Current law allows employers to spend unlimited amounts of money on employee health care — all tax-free to the employee. And for the highest-paid employees, companies take advantage of this loophole in spades — picking up the tab for all manner of expenses not covered by the company’s regular health plan. For example:

  • Until recently, Burger King provided senior execs and their families up to $100,000 a year for out-of-pocket medical costs.
  • Polaris Industries, the snowmobile and motorcycle marketer, provides five senior execs up to $50,000 for out-of-pocket expenses, including an annual Mayo Clinic checkup for its CEO, Scott Wine.
  • The retailer Kohl’s also covers up to $50,000 in medical expenses — on top of the regular health plan.
  • Cereal marketer Ralcorp gives execs up to $10,000 per illness.

Quite apart from (1) the inequity of letting high-income execs pay for care with the employer’s untaxed dollars, while the people who work for them must pay with their own money out-of-pocket and after tax and (2) the harmful effects of encouraging wasteful health care spending, (3) these tax law perks have to go if we are ever going to have lower, flatter rates.

Comments (7)

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  1. Ken says:

    I agree with you. This is absurd.

  2. Paul H. says:

    Obama wants to raise taxes on capital gains and dividends, but keep the tax break for over consumption of health care? How does that make any sense?

  3. Devon Herrick says:

    A policy to pay for excessive medical costs seems like an extravagant executive perk. However, I assume the risk is underwritten by a stop loss policy. If so, the cost of providing the coverage may be relatively low — so what sounds like extravagant coverage could be compensation for rare medical events that costs the company little.

  4. Neil H. says:

    This may be unfair, but the Obama administration acts like it has no economic sense whatsoever.

  5. Tom H. says:

    Tax law has shaped and molded the health care system. So what is the one thing Obama Care doesn’t do? It doesn’t change the way we subsidize the vast majority of private health insurance. The tax on bloated insurance doesn’t kick in until 2018.

  6. Vicki says:

    I think the examples you cite are examples of ridiculous tax policy.

  7. Brian Williams. says:

    Alexander Hamilton was correct when he said, “Tax laws have in vain been multiplied; new methods to enforce the collection have in vain been tried; the public expectation has been uniformly disappointed, and the treasuries of the States have remained empty.”