Jindal’s Attack on Walker’s Health Plan is Off-Base
Yesterday, I addressed Governor Scott Walker’s health plan in largely positive terms. Governor Bobby Jindal, a competing Republican presidential contender, has launched a broadside against Walker’s plan, describing it as a “new federal entitlement.”
The charge is way off-base. Governor Jindal proposed a health reform back in 2014, via his America Next policy shop. The point of contention is that Governor Jindal’s proposal would not offer everyone a refundable tax credit. Instead, it would eliminate the exclusion of employer-based health benefits from taxable income and replace it with a standard deduction.
I criticized the proposal when it was issued. True, it is an easier switch than a refundable tax credit. On the other hand, a deduction does nothing for low-income households – which means the welfare state continues to exist. Jindal himself proposed throwing $100 million more at states to fund their medical safety nets.
You can say (and I might agree with you), that the federal government should get out of the safety-net business. Nevertheless, the federal government is an income-tax devouring and debt-generating machine. As long as it remains so, states and citizens will call upon it fund welfare programs.
The tax treatment of health benefits must follow the tax code. It cannot lead it. Governor Jindal has not proposed a massive overhaul of federal taxation. Even Senator Rand Paul’s proposal to rip up the IRS and start again would give us a 14.5 percent flat tax on household incomes above $50,000 (for a family of four). The federal government would remain the dominant tax collector and still fund welfare programs.
NCPA’s view of this is that the federal government should fund a tax credit for every household. For those who cannot or will not use it to pay for their own health care, the government will send it to safety-net providers in their communities.
So you favor Corporate welfare over Public welfare.
Here’s a question. Let’s say we reach 5% unemployment. That would leave approximately 15,000,000 out of work, who will never find work because there is not a job available.
What do you do with them?
A Corporation must seek profit. The Government doesn’t. By default it would be less expensive to support Public Welfare over Corporate Welfare as we see today through privatization and income equality.
Erik, I think government statistics report that more than 90 million working-age people are “not in the workforce” already.
John,
Current population at full employment (which is 6% not 5%, I was being generous) would leave 15,000,000 out of the job market. We are no where near 5-6% unemployment.
I’d love to know what that means.
If anyone wants to take the time, could they explain to me just how the tax-deduction version of health care reform would work.
Say that a person makes $80,000 a year working for a corporation, and receives a $20,000 family health insurance policy.
Under Jindal reform, the $20,000 is added to their income.
What happens next? do they get a $20,000 deduction from income? Doubt it.
do they get an $8,000 deduction from income? That still leaves them with extra taxes on $12,000 at marginal rates.
I doubt that the Jindal plan will ever become law, but I have never found a blow by blow account of how it would work.
Gov. Jindal stated a “standard deduction” but I cannot find where defined the limit. Other similar proposals have defined the dollar limit.
I’m not sure a standard deduction would provide much help to moderate income people. It would only result in cash when a tax return is filed. People who withheld from their pay checks could file taxes and the standard deduction would make their refund larger. That doesn’t do much for people who must enroll in individual policies. Of course, individuals could reduce their withholding and use the incremental monthly savings to pay premiums. But, I suspect many will have trouble with that. There is also the problem with income tax return fraud, when scammers file bogus returns and claim the deduction to make their fake tax returns’ refund higher. Either way it’s done (tax credit or deduction), the benefit has to be refundable and advancable. At least a tax credit could be deposited into an HSA that could only be used for health care. For a standard deduction to work, the employer would need to set up a cafeteria plan withholding mechanism that would only allow their workers to use the standard deduction if they were depositing approximately 1/12th of the sum into an account or on a premium. As you see, it’s already getting complicated.
Tell me again why someone with a six figure income needs a tax credit to make health insurance look cheaper than it really is.
Thank you Professor Pauly. The tax credit proposed by NCPA would actually reduce after tax income for high-income earners, because it would traded off with getting rid of the exclusion of employer-sponsored health benefits from taxable income.
So, for those paying the higher marginal income tax rates, the value of the tax shield they lose would be more than the value of the tax credit.
Jindal’s tax deduction sounds like the worst of both worlds– continuing to give the highest benefit to those who need it least, while destabilizing the entire employer-sponsored insurance status quo before a functioning alternative is in place.